Size Matters
One of the most interesting features of the Manhattan real estate market since L-Day last September 15 is the way in which properties of different sizes have had different trajectories. In the last quarter of 2008, only properties costing under $1,000,000 were selling. The most likely reason for that: with rents still high, it remained cheaper to buy them than to rent them. Prices were lower, in some cases sharply lower, but the general seller capitulation which brought prices down so dramatically across the whole property spectrum was really more a phenomenon of the first quarter of 2009. Not many deals were done, but those that WERE done were small.
Beginning in February that focus changed for us. More buyers, seeing real price reductions, began to bid on larger units. We gradually began to sell more higher priced properties, especially those with motivated sellers. Then the stock market plunged in the first week of March and everything got renegotiated or put on hold again.
Beginning in mid-March the real estate market took some tentative steps towards stabilization. Sellers acknowledged that the landscape was different. The Obama tax credit, although small for New York properties, combined with historically low interest rates to pull in first time buyers. People who had put off their search to wait out the market, and many who had been priced out several years ago, gradually and tentatively returned to looking and bidding. Those trends solidified over the ensuing months and deal flow increased in every category.
Today we see moderate activity in all price ranges. Small units continue to hold their value best, with prices down anywhere from 15% to 25% off the peak. At the upper end, prices are off 30% to 40%. The recently issued Deutsche Bank report predicts that the peak-to-trough value reduction in New York real estate will be 40%. While I think this analysis lacks nuance in its understanding of our market segments, and displays Wall street’s usual glee in predicting the demise of real estate, the interesting fact is that at the high end we are already there. We hope for a summer of continued price consolidation, moderate activity, and PLEASE, no surprises!