Manhattan Finally Falls to Real Estate Blues

Manhattan has held up much better than most big cities as the housing bubble burst over the last 18 months.

Even so, the real estate market in the country’s most fabled island is starting to show some cracks. The number of home sales in Manhattan already has begun to slow, and experts see that trend continuing — accompanied sooner or later by a decline in home prices.

"Of the alternatives of how you could look at Manhattan — that it will go through the same thing as the rest of the country but later, that it will go through it less, or that it won’t go through it at all — I’m of the mind that it will go through it less,” Barry Hersh, associate director of City University’s Real Estate Institute, told New York real estate magazine The Real Deal.

That would represent quite a change from last year, when Manhattan market bucked the national trend. Consider that the sales price for a Manhattan apartment averaged a record $1.4 million in 2007.

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The number of Manhattan apartment sales gained 3.2 percent last year over 2006, selling 18 days faster on average. Meanwhile, several real estate firms report that the number of apartments selling for more than $10 million tripled in 2007 from 2006.

Manhattan benefited from several factors in its favor.

The stock market didn’t start falling in earnest until this year. Wall Street’s "masters of the universe” financial stars were still extremely well paid last year, so they had plenty of money to spend on fancy digs.

Also, the strength of Europe’s economies and the dollar’s weakness against the euro sent Europeans scurrying for a piece of Manhattan.

Plus, young and even middle-aged professionals in a range of fields from finance to the arts continued to want to work in the Big Apple. It’s where careers are made.

Now, all but the final factor are starting to go in reverse.

"The worst-case scenario is that there is less demand … especially because of the massive loss of jobs that appears to be on the horizon,” Robert Von Ancken, executive managing director of Grubb & Ellis, told The Real Deal.

In addition, he said, "Because the economies in Europe are not doing as well, you may have less European buyers coming to buy up condominiums.”

Certainly, the very top of the market -- $10 million and up -- could continue to hold up, as the ultra wealthy don’t feel much impact from economic downturns.

"The rich are even richer than ever before, and the very wealthy are pouring money into residential real estate,” Laurie Moore, founder of the Institute for Luxury Home Marketing in Dallas, tells Newsweek.

But the rest of the Manhattan market is vulnerable. A recent report from Real Estate Group New York showed that Manhattan rents fell in January, by more than 7 percent in some neighborhoods.

The data "reinforce our sentiment that the market has, in fact, turned,” Daniel Baum, the group’s chief operating officer, said in a note accompanying the report.

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