The last quarterly report was disconcerting. The fall in sales activity and a significant uptick in the inventory numbers worried many in the industry. Average prices, however, continued to rise. The old belief held by many businessmen that it is impossible to lose money in the long run if you invest in Manhattan real estate seemed to hold fast, even while the national economy thrust itself into the center of the country’s political stage.
Even though the rise in average prices was due mainly to the city’s luxury market, many participants in that market sector took the report to be the first cloud on the horizon of what would end up being a sizable storm.
Regardless of where the rise in prices came from, though, the strength of Manhattan’s prices remained striking. Now, however, the signs are accumulating that prices may take their first hit in many years.
It remains to be seen if the change in the direction of the price tide has taken place early enough to pull the third quarter numbers down into negative territory. Indeed, many insiders still argue that mean prices are on the rise.
Few observers, however, would doubt that the median price of homes in New York City is now declining. Unlike mean prices, the median prices are not hugely affected by strength at the very top-most section of the market.
One trend that stands out, however, is a good sign for real estate investors: Prices of new developments have continued to rise, while resale values have fallen. While this is in part due to the inflationary pressure of rising fuel and construction costs, much of the strength in the new developments sector comes from the very limited nature of available New York City real estate.
The city did not experience the same over-development that so many US real estate markets did. Similarly, New York City’s co-ops have effectively added another layer of regulatory protection over the market that effectively saved it from directly experiencing the effects of the subprime crisis. All of this has kept the market more stable. So, builders in the city have felt more comfortable going ahead with the construction of middle-class homes aimed at the upwardly mobile – as opposed to the relative discount housing that so many markets are seeing come on the market in other major American cities.
When all is said and done, though, the recent price decreases mean it has become the prime season for buyers. The bulk of the decreases in median prices has come from the repeated discounts on properties that have not been selling for some months now. As the first wave of sellers has become almost desperate to sell properties, some buyers have become able to extract large savings from the negotiating process.
This situation seemed almost unthinkable a year ago, but then again, that’s the New York City real estate market for you.