Last week, Standard & Poors released its quarterly Case-Shiller Index. The index gauges trends in national and local real estate markets using data from repeat sales of single family homes.
According to S & P, housing prices fell 4.2 percent for the first quarter of 2011, pushing housing prices back to their 2002 level.
As inflation gathers steam and housing prices continue to slide, we are approaching the point where housing inflation will intersect the Consumer Price Index trend line.
The intersection of housing prices and inflation will be a pivotal moment of the correction. One would think that this point should mark the end of the correction. However, continuing economic weakness, foreclosures and higher interest rates could cause further declines in housing prices and encourage even solvent home owners to engage in “strategic default.” Such a crash would be unprecedented and undermine any economic recovery.
In New York City, it took the Lehman Brothers collapse in September 2008 to force a correction to the real estate market. In other parts of the country, especially Florida, California, and Arizona, prices began their decline as early as 2006.
Could the New York City market continue this pattern of lagging behind national trends and experience a “double dip” that will bring prices down to 2002 and 2003 levels?
In an admittedly unscientific survey, I graphed the average of the five median sales at the Manhattan Place Condominium at 630 First Avenue (at E. 36th Street) for each year from 2003 – 2009.
Manhattan Place – Transaction Volume (2003 – 2011)
The data is consistent with trends in Manhattan for the last few years. The market peaked in 2007, declined slightly even prior to the Lehman Brothers crash in 2008, dropped precipitously in 2009 and rebounded in 2010 due to the first-time home buyer’s credit, low interest rates and other government stimulus.
While the national market has returned to 2002 levels, the above data suggests that the Manhattan market is back only to 2005 levels. By 2005, however, the Manhattan market had already doubled from mid to late 1990s levels and increased by more than 20% from 2003 and 2004 levels. So has the market really stabilized or, like the national market, will it “double dip” and slide to levels in more in keeping with the CPI?
Let’s take a look at what is going on at Manhattan Place right now:
Manhattan Place Condominium – Apartments on Market
Considering that most sellers price their apartments at about 3% to 5% over the likely closing price to allow some room for negotiation, it appears that closing prices may be heading lower in the coming months. The last apartment to sell was #34P, a 765 high-floor 1BR that closed last month at $941 per square foot. However, #16N, a 951 square foot Junior 4, closed in February at only $835 per square foot, while two others closed in January for $910 per foot. It should be interesting to see the closing prices for the two apartments currently in contract.
A number of variables unique to the Manhattan market may limit further declines. Manhattan’s strict co-op boards have limited foreclosures and the downward pressure they can exert on prices. A low rental vacancy rate, and rebound in the rental market, can make purchasing an attractive alternative to $3000 per month one bedrooms and $5000 two bedrooms.
While I don’t think we will ever see a return to 1990s level prices, and perhaps not even to 2003 prices, further slippage in NYC housing market, and in particular co-ops and condos in the under $1M range, is possible.
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