Worries Mount Over the Second Half of 2008

While the Manhattan real estate market
has sustained itself incredibly well over the past several years, the second
half of 2008 is facing a significant possibility of a notable slowdown in market
activity.
As signs of the city market's connection to the national market began to show
in late 2007, the fall off in demand mainly effected secondary factors like
negotiation times and frequency of bidding wars. However, as 2008 continues
on, and the national market shows no signs of improving – and, indeed,
may even worsen further – prices in the New York apartment market may
begin to lag.
Furthermore, the very success of the NYC real estate market has led many sellers
to conclude the market is near-invulnerable. This may lead to "sticky" prices – an
economic term, surprisingly, that refers to a situation where suppliers do
not adjust prices to shifts in demand with adequate speed.
This price stickiness could lead a further drop off in market activity that
could adversely effect demand levels.
Last quarter's numbers soothed much of the worry about the Manhattan apartment market. Though
much of it was concentrated in the luxury market, significant growth in prices
was seen across the board.
However, the likelihood of a downturn has grown significantly in the past
several months. For instance, one analyst, quoted by Reuters, said that
the market is "definitely going to see weakness."
Fortunately for those interested in the luxury market, it is doubtful that
values would recede considerably. While there certainly will be a significant
reduction in the growth of average prices, it is doubtful that anything but
a very deep recession would could lead to an actual drop in average prices.
The luxury market, for instance, shot up roughly 17.6% in value last quarter. This
is compared to just under 7% for the market as a whole.
Furthermore the luxury New York City
apartment market, even more so than most
luxury markets, is relatively immune to the national business cycle.
This general strength is counter-balanced, however, by the current dire straights
of the US financial industry centered in the city. Of course, profits
would have to be truly terrible in 2008 in order for it to curtail the salaries
and bonuses of those in the financial industry that make up so much of the
demand for luxury apartments here.
It is unlikely this will happen. More probable, however, is that some
financially savvy employees at financial firms will try to wait out the recession
before buying a home.

At any rate, demand will drop of significantly. Not however, critically: Luxury
home values, buoyed by the weak dollar, will probably see little if any decline
in during the year.

Nicholas Adams Judge is a freelance writer specializing in business, politics and economics. He holds a B.A. in political science and will begin his PhD studies in political economy and public opinion next fall. He has studied economics and political science at a number of different institutions, both here and in the U.K., including Amherst College, Warwick University, Oxford University and the University of Massachusetts-Amherst.
Manhattan Apartments