Normalcy Returns to the Luxury Apartment Market

Author: Gea Elika
December 8th, 2007

For years now, the Manhattan real estate market has been one of the most bullish in the country. Even as the subprime crisis started to decimate the national real estate industry earlier this year, the New York City market continued to increase in value at a rapid rate. During the last quarter, for instance, apartment values in New York City grew faster than any other area of the country.

Even the New York City market is mortal, though. With national GDP growth projected to be in the range of 1% next year the New York City market may finally be cooling down. Several analysts have predicted recently that something of a “stalemate,” as the New York times put it, is developing between buyers and sellers. That is, signs of a cooling real estate market are widespread and significant, but not drastic. A significant decrease in New York City housing prices is not expected unless the national economy enters a lengthy and deep recession.

For instance, 9.9% fewer apartments were sold in September of 2007 than in the September of 2006. Fortunately, that does not translate into a corresponding decrease in prices. But it has made some brokers more willing to offer incentives and accept offers that they would have literally laughed at a few years ago.

In many ways, this is good for the long term health of the city's housing economy. Whereas as late as last year buyers were forced to purchase homes – especially luxury apartments – sight unseen and for at least the listing price, now there is a more equitable balance of power between buyer and seller. Thus, the merits of the apartment may be more closely reflected by the asking price.

This “stalemate” is, theoretically, the ideal way for a market bubble to work itself out of the economy.

The coming factor that will shape the luxury housing market will be bonus time for the financial industry. While profits are still high in New York City's most profitable industry by historical measures, the banks and investment firms have been hit by many losses that most believe were avoidable if board members and executives had been astute. So, the question becomes, will bonuses at most Wall Street firms be as significant as they were in years past?

So, by the end of the year, the future of the luxury housing market in New York City will likely become clear. If bonuses are a fraction of what they were a year ago, than the current “stalemate” will likely shift to a buyer's market. If they remain close to the same value, than the market will, in all likelihood, continue to be relatively well balanced between buyers and sellers.

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