Economic, Geo-Political Events Cool New York City's Residential Market in Q4

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After a summer and fall of mixed economic news and uncertainty caused by geo-political events including the debt ceiling debate, the S&P downgrade of US debt, and the financial crisis in Europe, the Manhattan housing market experienced a slowdown in the level of activity.

However, overall pricing power retained its stability according to a new market report by Manhattan-based Prudential Douglas Elliman.

According to the Prudential Douglas Elliman Manhattan market report, there were 2,011 sales in the fourth quarter, 12.4% less than 2,295 in the prior year quarter. The fourth quarter had the lowest number of sales since the same period six years ago, perhaps related to the unusual surge in sales in the third quarter.

Co-op and condo sales returned to near equilibrium with co-ops comprising 49.5% market share and condos comprising 50.5% market share. The drop in mortgage rates caused by the S&P downgrade helped shift more demand to the entry-level market, which is generally more responsive to changes in mortgage rates.

Entry-level apartments, namely studio and 1-bedrooms, were 51.3%, the highest level since 2009, which readily saw market share in excess of 50%, as first time buyers entered the market after the credit crunch began.

The overall price indicators were mixed and showed continued year-over-year stability. Median sales price was $855,000, up 1.2% from the same period last year. Average price per square foot increased 5.6% over the same period to $1,117 from $1,058. Average sales price declined 2.5% to $1,445,484 from $1,482,650 in the same quarter last year. All three price indicators showed seasonal quarter-over- quarter declines.

With 7,221 apartments in active inventory, levels remained 2.6% below the ten-year average of 7,412, and essentially unchanged from the same period last year. With the slowdown in the number of sales and the stability in listing inventory, the monthly absorption rate--the number of months to sell all active inventory at the current pace of sales--increased to 10.8 from 9.5 in the same period last year, roughly one month slower than the 9.4 month average of the past decade.

With the modest slowdown in the pace of the housing market in the fourth quarter, days on market expanded by 5 days to 130 days, as compared to the same period last year, but the listing discount compressed to 4.9% from 8% over the same period. Although tight credit conditions remain, the regional economy continues to see modest improvement, the weak US dollar continues to drive international demand and the financial services sector helps contribute to economic stability, the Manhattan housing market is still outperforming most US metro housing markets.



Co-Op Market

The number of sales fell 16% to 996 from 1,186 in the same period last year, and 24.4% from 1,317 in the prior quarter. While there is a seasonal decline from the third to fourth quarter, the large decline was due to the surge in sales in the prior quarter from the drop in mortgage rates. While the level of sales has declined, a residual of the mortgage rate decline has been a rise in the market share of entry-level apartments. Their market share expanded to a two-year high water mark of 57.3%, as entry-level apartments respond more quickly to changes in mortgage rates. Median sales price was $636,407 in the fourth quarter, 7.1% below $685,000 in the prior year quarter, the lowest level in two years, and 9.7% less than $705,000 in the prior quarter. Average sales price followed the same trend. Price per square foot was $936, 0.9% higher than $928 in the same period last year, and 5.5% below $991 in the prior quarter. There were 3,839 listings at the end of the fourth quarter, 4.1% more than 3,687 in the prior year quarter. Despite the increase in inventory, days on market was essentially unchanged at 117 days from the prior year quarter and listing discount declined to 4.8% from 5.8% over the same period. Co-ops comprised 53.2% of all active apartment inventory, and 49.5% of all apartment sales.



Condo Market

After the atypical surge of condo sales in the third quarter largely related to foreign buyers, condo sales declined 43.3%, returning to a more consistent level of activity. There were 1,015 sales in the fourth quarter, 8.5% below the same period last year, resulting in a 50.5% market share. Condo market share was 48.3% in the prior year quarter and 57.6% in the prior quarter. Price indicators were generally above prior year quarter and prior quarter results. Median sales price was $1,165,000, up 16.7% from $997,885 in the same period last year, and up 11% from $1,050,000 in the prior quarter. Price per square foot followed the same pattern. Average sales price slipped 0.7% to $1,771,232 in the fourth quarter from $1,784,296 in the prior year quarter, but increased 7.1% from $1,654,280 in the prior quarter. Monthly carry costs per square foot, including common charges and real estate taxes, were $1.54. Listing inventory declined 4.6% to 3,382 listings, and the listing discount declined to 4.9% from 10.4% both from the prior year quarter. Despite the decline in listing inventory, and decline in listing discount, days on market expanded to 143 days from 132 days over the same period. Limited inventory has resulted in sales of properties that had longer marketing times.