Wednesday, September 03, 2008

It's Different in Manhattan or Maybe Not?

The consistent refrain from the talking heads on TV is that despite the collapse of home prices around the US, Manhattan was different. First, Manhattan was insulated from the hype because Wall Street was flush with cash, I mean really, really flush with cash. Then when Wall Street started to crack and it was the weakness of the US dollar that would lead to Europeans and Asian buyers supporting the market. Well, now the US dollar has strengthened (for reasons completely unrelated to the economy) and the foreign buyers have dried up.

The Financial Times reports that Manhattan real estate is showing it's first cracks.

"As the US housing slump deepened over the past three years, Manhattan’s real estate market seemed immune. Instead of crumb­ling with the rest of the nation, prices continued to rocket. Sales surged and new condominiums found multiple bidders. For a long while, Manhattan property was in an orbit all of its own.

But there are growing signs that this last bastion may be giving way. New York City, the seemingly indestructible foundation of the nation’s luxury property market, has this year begun to shown signs of strain. In the second quarter, traditionally the hottest property season, sales slumped 38 per cent to a five-year low, according to the Corcoran Group, the city’s largest residential real estate group."

Basic economics says slack demand and stable supply should lead to lower prices, but slack demand and soaring supply should really impact prices. As I've said a number of times, asking prices for homes are ridiculously sticky. People always remember what Bob down the street got for his 3 bdrm ranch in 2005 and they want 20% above that price. Eventually, prices begin to slip and when they do, the drop can be sharp and painful.

"According to Miller Samuel, a New York residential real estate appraisal company, some 6,869 apartments were for sale in Manhattan in the second quarter. That is 11 per cent more than the first quarter – and a full 31 per cent more than the second quarter of last year."

Again, this speaks to the potential weakness of the NYS economy and the long-term impacts on Upstate NY.