Manhattan Apartment Prices Drop as Lehman Effect Hits Home

Manhattan Apartment Prices Drop as Lehman Effect Hits Home


July 2 (Bloomberg) -- Manhattan apartment prices dropped for the first time since 2002 in the second quarter as the collapse of Lehman Brothers Holdings Inc. and Bear Stearns Cos. caught up to property owners in the nation’s most expensive urban market.

The median price fell 18.5 percent from a year earlier to $835,700, New York appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate said today. The number of sales plunged by half, the most since Miller Samuel began keeping data in 1989.

“The standstill that existed after Lehman Brothers has been broken, and it was the sellers that cried ‘Uncle,’” Pamela Liebman, chief executive officer of New York-based property broker the Corcoran Group, said in an interview.

Values are falling broadly in Manhattan for the first time in the almost four-year U.S. housing recession, with declines now seen in co-operatives and condominiums of every size and price. Private-sector employment in the city dropped by 91,200 jobs, or 2.8 percent in the 12 months through May as Wall Street losses and asset writedowns topped $1.4 trillion.

The price of studio apartments declined 16 percent from a year ago to a median of $405,000, according to Miller Samuel. One-bedrooms dropped 17 percent to $650,000 and two-bedrooms fell 23 percent to $1.27 million. Three-bedroom units fell 37 percent to $2.35 million and four-bedrooms plummeted 47 percent to a median of $3.92 million.

The Miller Samuel-Prudential data reflect for the first time what sellers have known for at least six months: The way to lure a buyer in the current market is to cut your price.

Price Cuts

About 32 percent of second-quarter listings included discounts from the original asking price, according to StreetEasy.com, a Web site that gathers Manhattan property listings from brokers. The deepest concessions were on Central Park South and in the Financial District, where list prices were pared by an average of 10 percent.

“The sellers who want to sell are reducing their prices,” Liebman said. “The ones that aren’t, are either sitting on them overpriced or waiting for another day.”

James Rosenthal didn’t want to wait.

Rosenthal and his Upper West Side neighbor on Riverside Drive near 77th Street put their adjacent apartments up for sale in February 2008 for $6 million, hoping to lure a buyer that wanted to maximize the 3,800-square feet of combined space.

Then Bear Stearns collapsed and the neighbors cut their price to $5.75 million, then to $4.96 million. The properties sold for $3.6 million, a 40 percent discount from the original asking price, on April 20, said Rosenthal, who is a senior vice president at New York real estate brokerage Brown Harris Stevens as well as a recent seller.

Neighborhood Declines

“As the seller you don’t control the market,” Rosenthal said. “The buyers control the market.”

On the Upper East Side, the median price of existing co-ops fell 20 percent to $758,000, while condominiums in that neighborhood declined 4 percent to $1.22 million, according to Corcoran. On the Upper West Side, co-op re-sales slid 8.5 percent to a median of $700,000 and condos were down 22 percent to $893,000.

South of 34th Street median prices for condos and co-ops combined dropped 16 percent to a median price of $880,000, according to StreetEasy.

While home prices have been falling nationwide since 2007, Manhattan held up in part because of new luxury developments that sprouted up and were planned during the housing boom.

Luxury Condos

New condominiums in buildings including 15 Central Park West and the Plaza went into contract at record prices between 2006 and the beginning of 2008. Closings on those sales continued to appear in public records and in broker statistics through the beginning of this year, which kept median prices high, said Jonathan Miller, president of Miller Samuel.

The average price per square foot of condos on the Upper West Side fell 29 percent in the second quarter to $1,145 because only one apartment closed at 15 Central Park West compared with 57 closings in that building a year ago, said Gregory Heym, chief economist for Terra Holdings LLC, which owns brokers Brown Harris and Halstead Property LLC.

New developments comprised 27 percent of all sales in the second quarter, down from 35 percent a year ago, Miller said.

Property brokers and Web sites issued five separate market reports today. All showed price declines. The groups base their findings on closings culled from city records and their own data.

Brown Harris, Halstead and StreetEasy said in separate reports that median prices dropped 19 percent from a year earlier. The Corcoran Group, which conducts its survey with the property research Web site PropertyShark.com, put the decline at 13 percent.

Fewer $1 Million Sales

The fall stems in part from a shift to more sales for less than $1 million. Of 1,532 deals closed in the second quarter, 61 percent were for less than $1 million versus 49 percent a year ago, Miller said.

Buyers in higher price brackets are struggling to obtain mortgages for more than $729,750, the limit on home loans that federally controlled mortgage buyers Fannie Mae and Freddie Mac can purchase or guarantee.

So-called “jumbo” lending, which includes refinancing as well as home purchases, dropped to $98 billion last year from $348 billion in 2007, according to the Bethesda, Maryland-based newsletter Inside Mortgage Finance. Jumbo loans fell to $11 billion in the fourth quarter, or 4 percent of the mortgage market, the lowest quarterly amount since Inside Mortgage Finance started tracking that data in 1990.

“People can’t borrow as much,” said Prudential Douglas Elliman CEO Dottie Herman. “So they can’t spend as much.”

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