Luxury Manhattan Real Estate Could Fall Another 50% - Barron's

Even Barron’s, which forecast in November a New York real estate decline, seems surprised by the velocity of NYC’s luxury market crash. Sales were down 40% while prices declined 20% in Q408. Look out, says Barron’s Leslie P. Norton: High end NYC apartments and townhouses could fall by another 30%-50% and recovery will be protracted.

Two years into a nationwide downturn, NY is just starting to feel housing pain. Yet feel it it is as the city faces a perfect storm of harder-to-get “super-jumbo” ($650K+) loans, higher down payment and credit score requirements, disappearing Wall St. jobs and a glut of condo conversions. Purported housing bubble inflators such as foreign buyers and hedge fund managers have retreated. Even the merely affluent are feeling stock market shock.

The average Manhattan apartment still costs $1.6 million, while top apartments are going for as high as $65-80 million. Yet high-end inventory rose 65% in Q408 even as ultra luxe residential projects like the refurbished Plaza Hotel cut prices. Condo conversions city-wide are barely selling.

Manhattan 'burbs offered no shelter: Greenwich, Conn. and Westchester, NY, for example, saw a 30%+ drop in sales.

Housing expert Ivy Zelman says NY’s housing bubble was particularly frothy. Zelman foresees a 46% decline before prices become “normalized” again. Goldman Sachs predicts condo price declines of 35%-44%.

True that once-in-a-lifetime deals like Brooke Astor’s $46 million penthouse can now be had for $29 million, but how much less will that be in 2009? Buyer beware.

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Nick Gogerty figures out that a reversion to the mean could cause Manhattan real estate prices to decline by 60% within 12-18 months.

Comments

[zermux:]

Please could you keep this information really quiet. I know that House prices are going to revert to 1980 levels, however i would prefer for other people not to figure this out until after I have sold my house in Long Island.

Feb 22 06:40 PM

[Donald Johnson:]

Why has it taken Barron's so long to figure this out?

Feb 22 07:59 PM

[Nik Kondrat...:]

Since we know that historically home prices and income are highly correlated and over the last decade plus we have experienced a gross aberration, it stands to reason that home prices have a long way down to go, especially as income will be flat to negative in the next several years. The New York MSA has a long way to go down before things return to the historic mean.

Feb 22 09:10 PM

[HiSpeed:]

Not only would I expect New York real estate to revert back to the mean; an overshoot to the downside seems likely given that many of the high-end jobs on Wall Street that existed just a few years have gone to job heaven.

Feb 22 10:40 PM

[sundrenched:]

When I went to grad school in NYC in the early 1990s, one of my friends bought a 2-bedroom apartment inclusive private use of the garden on 77th street, just off Columbus, for 120k. It wasn't a dump at all, it was one of the nicer 2-bedrooms that i've seen in NYC, very quiet also as all rooms were facing the garden. Another friend lived in a large (I estimate 800sqf) studio apartment on Prince Street that her parents had bought for her for 60k. I don't expect you to believe me -- I almost have trouble believing it myself today!

Feb 22 11:26 PM

[Mad Hedge F...:]

In case you missed the business section of the San Francisco Chronicle, there is a fabulous graphic illustrating the hard times for the city’s commercial real estate market. The epicenter of the melt down is Tishman Speyer’s 556,000 sq. ft. 555 Mission Street, which opened in late 2008 during the worst possible market conditions, and remains 70% empty. What is really impressive is how bad the implosion of the legal profession is hitting landlords. The dissolution of Heller Ehrman has emptied 350,000 sq. ft. 333 Bush Street, while 388,000 sq. ft. 101 Second Street has been vacated by the dissolution of Thelen LLP. Conditions will worsen as more new buildings started during better times come on the market.

Feb 23 12:10 AM

[Kirsten:]

With more job cuts on the horizon, home prices in NYC will drop even more. I know that rentals are slowly declining too. I was able to find deals on skipbrokers.com and streeteasy.com for both Manhattan apartment rentals and sales.

Feb 23 01:10 AM

[Dave Wrixon:]

Yes but if they are your typical Americans, they probably still owe a million bucks secured against it.


On Feb 22 11:26 PM sundrenched wrote:

> When I went to grad school in NYC in the early 1990s, one of my friends
> bought a 2-bedroom apartment inclusive private use of the garden
> on 77th street, just off Columbus, for 120k. It wasn't a dump at
> all, it was one of the nicer 2-bedrooms that i've seen in NYC, very
> quiet also as all rooms were facing the garden. Another friend lived
> in a large (I estimate 800sqf) studio apartment on Prince Street
> that her parents had bought for her for 60k. I don't expect you
> to believe me -- I almost have trouble believing it myself today!

Feb 23 01:34 AM

[ROLEXDAYTONA:]

Barron's publication is losing money, with their owner News Corp. stock down 70% nothing to be proud about.
News Corporation(NasdaqGS: NWS)
Today journalist write what sponsor orders, if some tycoon wants to buy real estate in Manhattan, Barron's will write it goes 50% down, if seller want to get a better price, then Barron's will write real estate goes up 50%.

Feb 23 05:13 AM

[henarl:]

Who is left to buy those $65-80 million apts.? I think those must be asking prices, not "going for" prices.

Feb 23 12:47 PM

[john1:]

Just more unpatriotic negativity from liberals who hate America, Free-Enterprise, Ronald Reagan, and the troops.

Feb 24 01:56 PM

[User 363682:]

The luxury real estate market has its booms and busts in every city. While New York City might be hurting right now, other cities may not. I was just reading an article which talks about this. Invest in Scottsdale Arizona Real Estate

Feb 24 05:08 PM

[Mad Hedge F...:]

With many analysts expecting commercial real estate to be the next shoe to fall in the financial crisis, there is already maneuvering to get a bail out in place before the sushi hits the fan. “Ghost malls” now widespread around Michigan are spreading to the coasts like a highly contagious plague. Simon Properties (SPG) and Westfield have gone to the extremes of shortening hours to save money on staffing costs and electricity. The trigger will be impending failed rollovers of the debt of a couple of big REITs, of which over a $1 trillion are coming due. The Treasury’s TALF program will be expanded from CDO’s backed by student loans, car loans, and credit cards to include commercial real estate loans, giving the industry the safety net, and the breather it needs.

Feb 24 05:34 PM

[billddrummer:]

Hi Judy,

Thanks for following this story. I think it may have parallels in SF, LA and San Diego.

As far as Northern NV is concerned, based on current sales trends, there's a 16.5 year(!!) supply of homes for sale over $1 million. 198 current listings, 1 sale.

I don't know how that compares with other markets, but it seems a staggering number. Another way to look at it is that it would take until 2025 to sell all the homes in this price band if no other properties are listed for that period of time.

Listing prices are sticky, but as you've pointed out with NYC, even the stickiest glue eventually deteriorates. Either buyers will flood the market (unlikely) or prices will eventually fall dramatically (much more likely).

ATB,

Bill

Feb 26 06:28 PM

[billddrummer:]

Hi Judy,

A followup comment:

Some recent research locally has found that nearly 80% of real estate closings are either short sales or REOs. What that means to me is that there are precious few move-up buyers who actually get cash from the sale of their existing home and can upgrade to a larger one.

That phenomenon is also, in my opinion, limiting the number of buyers for move-up properties nationwide. I'm aware that the distressed sales ratio nationally is about 45%, but local trends may be far different.

And with high income jobs disappearing in urban areas because of the downsizing of the financial services industry, look for more price declines (particularly for high value properties) in cities like Chicago, Washington DC, Dallas, LA, SF and Seattle, as well as suburbs like Atherton, CA, Fairfax, VA, Greenwich, CT, and Long Island, NY. Move up buyers don't exist, and high income jobs are hard to find (and keep).

More pain, but this time it's the 'rich' who will be suffering. And with the recently announced tax hikes and deduction limitations, buying a house as a tax shelter may become less appealing to those who need the writeoffs.


ATB,

Bill

Feb 27 02:50 PM

[SA Editor J...:]

Hi Bill,

Interesting detail, thanks!

ATB,
Judy

Mar 02 03:27 AM

[billddrummer:]

Hi Judy,

Updates from Northern NV for March 2009:

Sales are up, prices are down. Sales transactions are running 25% higher than last year, and inventory listed below $400,000 is nearing a 'balanced' supply, with 9 months of inventory based on current sales patterns. The median sales price has dropped to $200,000, and below $191,000 if condo sales are included.

That's the good news. The bad news? Still more than 5 years worth of inventory for properties above $1 million, and 770 Notices of Default were filed during the month, an average of 35 a day!

We're seeing a spike in commercial real estate Notices of Default, principally from small developers who bought land near the peak, and neighborhood mall operators struggling with high vacancies. (One area in Reno has a 25% vacancy rate in commercial property, including retail, commercial office, and industrial space.)

Source: renorealtyblog.com

This might be the floor, but we're probably going to slide along it for awhile. The NOD moratoriums have run their course, so I expect even more default notices to be sent out in April.

I'd like to know how this area is comparing to other regions hard-hit by the crash.

Your comments, as always, are appreciated!

ATB

Bill

Apr 09 05:46 PM