New York City Luxury Market Falls in 4th Quarter

Until recently New York City real estate has been fairly impervious to the U.S. housing meltdown, with most properties in and around New York continuing to appreciate (although more slowly than in recent years) in the midst of the biggest real estate mess to hit the country since the Great Depression. All of that changed, however, after September 7 of 2008 when the U.S. government seized the quasi-governmental mortgage giants Fannie Mae and Freddie Mac.

The median sales price of a luxury apartment slipped nearly 4 percent to $4,022,000 between October and December compared with the same period a year ago, according to Prudential Douglas Elliman’s quarterly report. The report defines the luxury market as the upper 10 percent of sales prices. Out of 259 Manhattan homes listed for $10 million or more, nearly 42% were dumped on the market just since September.

Real estate analysts have been nervously watching the Manhattan luxury market ever since the fall of Bear Stearns kicked off an avalanche of lay-offs and terminations in the NYC financial services sector. Even brokers and bankers who are still employed there are facing uncertain futures with no assurance that the unlimited, some might even say ‘insane’ bonuses they were earning during the boom times will continue now that the U.S is spiraling farther and father down into deep recessionary territory. Luxury items, including real estate, were bound to be the second wave of casualties (the first being the brokerage jobs themselves).

Real estate speculators and amateur apartment ‘flippers’ at 15 Central Park West–often snarkily referred to as the “Hedge Fund building”–as well as people who sank money into other new condo buildings like The Plaza and Trump Park Avenu, are now trying to unload their investments fast. It’s not going well for them either. Out of 69 people who listed properties in these areas at over $10 million last year and subsequently cut their prices, 59 of them dropped their prices after September 2008. That smells a lot like panic.

Experts expect it to get worse before it gets better, but so far the crunch is only impacting the priciest digs. Foreign investors should be watching this downward trend carefully, since NYC luxury real estate is never going to be a bad investment–it’s just that at this particular point intime the locales are skittish about plunking down five figure down-payments on apartments in the heart of a major city where they soon may not have a job.

“You’ve got a market where suddenly people don’t have the wealth they had before. Those who helped to build Wall Street to the stratosphere don’t know what their futures look like now,” said Rick Goodwin, publisher of Ultimate Homes and its parent publication Unique Homes.

One man’s loss, however, could definitely be another man’s gain. Investors with adequate funds could come out very well by watching this segment of the market carefully and making the right move at the right time.

For more information on the U.S. real estate market and what to watch in the coming year, check out our article on United States Real Estate Prospects for 2009.