Why is NYC defying price drops?

Article from Bloomberg: By Sharon L. Lynch Oct. 3 (Bloomberg) -- Manhattan apartment sales fell for the third consecutive quarter and inventory rose by a third even as prices continued to extend a five-year streak of gains. Third-quarter transactions fell 24 percent to 2,654 from a year earlier and the number of apartments on the market increased to 7,003, New York-based real estate appraiser... [more]

Article from Bloomberg: By Sharon L. Lynch Oct. 3 (Bloomberg) -- Manhattan apartment sales fell for the third consecutive quarter and inventory rose by a third even as prices continued to extend a five-year streak of gains. Third-quarter transactions fell 24 percent to 2,654 from a year earlier and the number of apartments on the market increased to 7,003, New York-based real estate appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate said in a report. The median price of a condominium and co-op jumped 7.4 percent to $928,263, the second highest on record, they said. Declining sales and rising inventory preceded lower home prices nationwide, spurring the nationwide housing recession. The city is bracing for a drop in property values after three of the city's five largest investment banks collapsed since March. Projected job losses in the financial industry rose to 64,000 in the metropolitan area, according to Moody's Economy.com. ``This crisis is so big and it's still sorting itself out,'' said Pamela Liebman, chief executive officer of the Corcoran Group, a Manhattan-based real estate brokerage that issued its own market report today. ``Until we get through the election and see what's going to happen with this bailout there are going to be buyers who sit on the sideline.'' The U.S. Senate this week passed a $700 billion financial- rescue bill and sent it to the House of Representatives for reconsideration. The measure is meant to stem the bleeding by financial institutions that bought mortgages, packaged and resold them as securities during the five-year U.S. housing boom only to realize almost $590 billion in losses and asset writedowns as record foreclosures beset the country. Federal Rescue The legislation authorizes the government to buy troubled assets from financial institutions in hopes of freeing them to raise more capital and unclog credit markets. The House rejected an earlier version of the bill on Sept. 29, sending the Dow Jones Industrial Average down 777 points, or 7 percent. The third-quarter Manhattan property market results are the first to capture sales since Bear Stearns & Co. was forced to sell itself to rival JPMorgan Chase & Co. in March after customers and lenders fled on speculation the company was short of cash. ``There is a clear understanding that the economy, and along with that the real estate market, is probably going to weaken before it gets stronger,'' said Jonathan Miller, president of Miller Samuel. ``But we are going into this weaker period with a fraction of the inventory overhang of a city like Miami.'' Rising Prices New York buyers faced higher prices on all sizes of apartments: studios rose almost 9 percent to a median of $425,000; one-bedrooms climbed 5.5 percent to $727,000; two-bedrooms gained 11 percent to $1.5 million; three-bedrooms rose 3.9 percent to $3.8 million; and apartments with at least four bedrooms were up 56 percent to $10.2 million, Miller Samuel said. About 30 percent of the sales in the quarter were at new developments. In the luxury market, defined as the top 10 percent of sales by price, the median increased just 1.8 percent from a year earlier to $4 million, according to Miller Samuel. In the second quarter, the median luxury price rose 38 percent to $4.95 million, mostly because of closings at condominiums in the recently converted Plaza and at architect Robert A.M. Stern's 15 Central Park West, Manhattan's two most expensive new projects. Co-Op Boards The cost of condos climbed 8.9 percent to a median of $1.22 million. Co-ops, in which owners buy shares in a corporation that owns the building, rose 2.9 percent to $688,000. New York City's residential real estate market is somewhat protected by financing rules set by co-op boards, which often require 20 percent down payments for even the smallest apartments, plus a cash cushion before they approve would-be buyers. The rules prevent speculators or people with poor credit histories from buying even if a bank would allow it, said Steve Malanga, a senior fellow at the Manhattan Institute. Brokers including Liebman said they are watching inventory. The number of apartments for sale at the end of the quarter rose 35 percent and was about 23 percent higher than the average over the last five years, Miller Samuel said. Corcoran put the number of unsold apartments at 10,761, the highest in eight years. Brown Harris' Figures Corcoran, which uses research from PropertyShark.com to augment its data and is owned by Apollo Management LP, also reported a higher price increase. Corcoran captured 2,982 sales, representing a five-year low, and reported a jump in median price of 10 percent to $975,000. Data from Manhattan-based brokers Brown Harris Stevens and Halstead Property LLC, owned by Terra Holdings LLC, showed a 12 percent price increase to $910,000. ``I think that we are seeing softening in some of the sectors of the market in terms of prices,'' said Gregory Heym, chief economist for Terra Holdings. ``It's not a huge decline. We've known that sales are slowing for some time.'' All the reports showed rising prices and inventory and a drop in the number of transactions. The numbers vary in part because each includes some of the company's own sales that have yet to show up in the city's public records database. New York may not be headed for as big a plunge in property values as it saw in 1989-91 when a flood of rental buildings were converted into co-operatives just as Wall Street was struggling to recover from the 1987 stock market crash, Malanga said. ``The social fabric in the city is much stronger right now,'' he said. ``You don't have the fear factor. You don't have people wanting to leave.'' [less]