Skip to main content

Big Apple Housing Loses Juice

Sales slow, but Wall Street bonuses may keep demand for luxury abodes thriving.

The Manhattan real estate market finished 2005 on a much tamer note than it began the year.

Pricing, while still up sharply from last year, has slowed from its once frenzied growth pace, and the number of sales completed has dropped. With inventories of homes for sale rising, real estate brokers hope Wall Street workers begin putting their bonus money to work to pick up the slackening demand.

Prices for condos and co-op apartments looked solid in the fourth quarter compared with a year earlier. The average price per square foot for closed sales of condos and co-op apartments hit a record $1,002, up 28.5% from a year ago, according to the Prudential Douglas Elliman Manhattan Overview for the fourth quarter, which was released Wednesday. The average sales price increased 20.3% from a year earlier to $1.19 million. The median sales price rose 25.6% to $760,000.

But from the third to fourth quarter, pricing growth was modest. The average price per square foot rose 1.8%, the average sales price increased 3.3%, and the median price grew 1.3%.

At the same time, Prudential's data show that inventories have been rising and overall sales have been slowing. The number of sales totaled 1,574 units in the quarter, falling 27.2% from a year ago and dropping 21.2% from the third quarter. Inventory increased 52.1% year over year to 5,964 units, the report says.

"This is the second consecutive quarter where we've seen moderating appreciation. The market has appeared to make a transition from a double-digit frenzied growth to a more modest growth," says Jonathan Miller, president and CEO of Miller Samuel, the independent Manhattan appraisal company that prepares the market report for Prudential Douglas Elliman.

Miller attributes the sales level drop to rising mortgage rates, mixed economic news and negative press in recent months about a supposed housing bubble. "Buyers have taken a wait-and-see position right now," he says.

TheStreet Recommends

That's why all eyes are currently set on the Wall Street bonus money, which is expected to

fuel demand for properties in the city, particularly for new development. Most bonus-driven sales occur from January to March. However, much of the sales activity won't show up in the numbers until 2007, since sales data are based on closings, not contracts, and units often take a year to be built.

But brokers say that wealthy buyers -- particularly those connected with Wall Street and hedge fund bonus money -- were very active during the final weeks of 2005.

"The end of the year saw tremendous activity in the super-luxury market above $10 million," says Pamela Liebman, CEO of the Corcoran Group. In recent weeks, two townhouses in the East 60's sold for above $30 million, along with a loft on SoHo's Prince Street that set a record (for loft sales) with a sale price of $25 million, she says.

"That whole bubble-bursting fiasco was fake," says Richard Ferrari, a broker with Prudential Douglas Elliman. Ferrari says his broker sales have been booming since Columbus Day, when confidence began picking up among buyers who had previously been barraged with negative news about a real estate bubble and high energy prices.

Case in point: Ferrari is set to close in coming weeks on a luxury duplex at 515 Park Ave. that had been on the market for 14 months. The asking price for the lavish unit was $23.5 million, and four buyers came in with bids above $21 million, he says.

Even though the overall level of inventory is increasing in the market, brokers and analysts expect a smooth, though less heated, market in 2006 so long as mortgage rates don't spike through the roof in a short period of time. Demand continues to remain strong for studio and one-bedroom units, which aren't being developed at the same rate as bigger units. "I don't hear anyone saying there's too many apartments out there," says Gregory Heym, chief economist with Brown Harris Stevens.

Heym says downtown -- the area below 34th Street -- continues to be the hottest area of activity, partially because it's where much of the new development has been. His firm's data show that prices for all sizes of co-op and condo apartments downtown jumped more than 20% in the fourth quarter from a year ago. Prices for three-bedroom units downtown rose 36% during the period.