By Roland Li
Overall residential sales prices fell in the first quarter of 2011, according to reports released last week from the major residential brokerages and the listings website StreetEasy, underscoring underlying concerns in the market.
According to data from Prudential Douglas Elliman, the Manhattan median sales price was $782,071, down 9.9% from the first quarter of 2010 and down 7.4% from the fourth quarter of 2010.
Some of the decline was attributed to the increase of co-op sales, which are, on average, priced lower than condos. Co-op sales increased to 1,430 units, up 28.7% compared to the first quarter of 2010, and accounted for 59.7% of all sales, its highest share in six years, according to Elliman.
Year-over-year declines were partially attributed to the expiration of a federal tax credit of $8,000 for first-time home buyers and $6,500 for repeat home buyers. While the incentives provided a temporary boost to the housing market in the first half of 2010, they only served to delay eventual price declines, said Jonathan Miller, president of Miller Samuel and author of the Elliman report.
“The way I would characterize the market is stable but fragile,” said Miller.
Still, even New York, with its relatively strong local economy, is not immune to national economic trends. Despite improvements in unemployment and income, financing has become tighter, which has hurt the middle of the market, and continued controversies over mortgage policies make credit unlikely to ease, said Miller. He considers the overall market as “moving sideways.”
A federal proposal last week suggested that lenders could retain up to 5% of a mortgage, unless the borrower has made a down payment of 20% or more, or the share is federally insured or sold to Fannie Mae and Freddie Mac, a move that could potentially complicate the mortgages of future homebuyers.
“This is not, in my opinion, a housing problem,” said Dottie Herman, president and CEO of Elliman. “It’s a credit problem.”
In contrast, the luxury market, defined as the top 10%, and especially sales over $5 million has been strong, said Herman, because buyers often do not need financing and close with cash. And low interest rates and prices have encouraged prospective buyers, particularly foreigners, to invest in New York real estate.
But properties at the very top can be hard to come by.
Russian composer Igor Krutoy recently purchased $48 million for a condo at the Plaza Hotel, the highest price ever paid for a single condo. Krutoy had previously sought a condo at 15 Central Park West, but lost in a bidding war, according to Alfred Renna, an executive vice president and director of sales, eastside, at Elliman. Other properties that Krutoy had toured required extensive renovations that would have delayed a move-in by years.
He was attracted to the Plaza Hotel because of it was ready for an immediate move-in, as well as the building‘s quality, history and location. Elliman broker Lisa Simonsen completed the deal.
Although Krutoy’s search was at the pinnacle of the market, his experience with bidding wars and low inventory has become increasingly common, according to brokers.
“The high-end is a lot stronger this quarter than it was in the last several years,” said Renna, with the number of transactions jumping 31% in February, compared to January.
The Corcoran Group reported a 7% increase in overall sales activity compared to the fourth quarter of 2010 and a 6% increase compared to the first quarter of last year, while prices remained flat.
“Competition is fierce across all categories, due to a market-wide reduction in top quality inventory,” said Pamela Liebman, CEO of the Corcoran Group, in a statement. “Bidding wars are now commonplace, especially for spacious and high-end properties.”
Brown Harris Stevens reported an average sales prices of $1,364,733, down 5% from the last quarter of 2010. Individual neighborhoods had mixed results, but the east side saw a 16% increase in average prices for two-bedrooms.
“As we see a steady increase in job growth in Manhattan and the general economic outlook continues to improve in New York City, demand for housing will remain strong. At the same time, low inventory will continue to be a factor,” said Hall Willkie, president of Brown Harris Stevens Residential Sales, in a statement.
Sofia Song, vice president of research at StreetEasy, said that while median prices decreased by 7.8% compared to the previous quarter, flat year-over-year prices were more indicative of the current market. Quarter-to-quarter data was skewed because of the number of larger apartments that closed in the fourth quarter of 2010, bringing overall prices up, and activity was down because of seasonal factors and as buyers waited for bonuses, she added.
Despite 53% fewer new developments closings compared to the previous quarter, the median price increased by 31.6% with closings at high-end buildings including the Rushmore at 80 Riverside Boulevard, the Chelsea Enclave at 177 Ninth Avenue and the Lucida at 151 East 85th Street closed units.
New developments, at 13.9%, are a much smaller piece of the market compared to the peak, when they made up approximately a third of all closings, said Song, indicating a rise in popularity for resales.
The biggest barrier to a market recovery could be buyer psychology, said Song. Favorable interest rates and stable inventory, combined with relatively high unemployment and questions over financing, have led buyers to adopt a “wait and see” attitude.
“There’s no sense of urgency for them to enter the market,” said Song.
But the coming months are expected to bring an increase in activity. Despite continued concerns over the national and global economies, the second quarter of 2011 is expected to be robust, following a seasonal pattern where the early summer months are among the busiest in the year.