Worries Mount Over the Second Half of 2008

by : Nicholas Adams Judge

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.