Manhattan real estate market is doomed
Posted
Oct 03 2008, 10:45 AM
by
Andrew Horowitz
Rating:
For the past several months there has been anecdotal evidence that the Manhattan real estate market was under siege. If you consider that New York has been the center of the financial universe and that every market eventually cycles, it's obvious that Big Apple real estate prices were in for a severe drop.
Yet, according to reports, average prices for apartments have actually moved higher while sales have dropped off a cliff. In fact, the average price for a Manhattan apartment increased approximately 10% from the third quarter 2007. Note that these prices were artificially pushed higher by a few deals that closed just this quarter but were under contract 12- 24 months ago.
The real problem now is that the heightened financial distress has not been factored into those statistics for this quarter's results. That spells more trouble as this cycle is set to be one of the worst ever in New York's history. (See Video: New York is Doomed, then it gets worse)
There are several NY Muni - Closed end mutual funds that have been pummeled because the municipality is going through a very hard time and the growing concern for the outlook related to the financial condition of New York. Just take a look at the growing problems in California before the idea of a municipal bankruptcy is dismissed.
Today, according to CNN News:
"The events of the second half of September in the financial markets and Washington have not shown up in the market data for the quarter, aside from the lower level of sales activity compared to last year's record levels," said Jonathan Miller, president of New York real estate firm Miller Samuel.
Corcoran sold fewer than 3,000 properties last quarter, down 45% from the nearly 5,500 properties the agency sold in the third quarter of 2007.
At the same time, the number of properties on the market is increasing. Listing inventory rose 34% during the third quarter, according to Miller's research.
"Clearly, inventory is moving higher as sales activity has fallen," said Miller, who attributed the slowdown at least in part to the fact that mortgages have become more expensive and harder to get.
And economic turmoil in Europe has crimped the flow of overseas buyers to the city. Miller estimates that foreign buyers made up one-third of all purchases in new developments in New York last year.
While the labor market in New York has remained relatively stable, the fallout from the crisis on Wall Street, and the corresponding rise in unemployment in the financial sector, will probably further undermine the city's real estate market.
"We're going into an uncertain economic period with volume at low levels and a low likelihood of new development," Miller said.
Miller said the direction of the real estate market could hinge on Washington's proposed financial intervention, which is currently being debated in Congress and the outcome of this year's presidential election.
One of the main goals of the bailout plan is to free up the frozen credit markets, which have been a major drag on economic activity - particularly in the housing market.
"The question of housing is almost moot unless you get a handle on where credit is going," Miller said
Related reading:
New York's Mutli-Billion Dollar Sinkhole
Woman buys house for $1.75 on eBay
The Steak is perftect, but the Big Apple is rotten
All Moneyblog coverage of housing
Andrew Horowitz is a money manager and the founder of Horowitz & Company. He is also the author of the bestselling book, The Disciplined Investor . Check out his latest investment idea or listen in as he hosts, The Disciplined Investor Podcast.
