When the residential real estate market falls hard, it falls. New York (Manhattan, too) is different from many other regions because it is denser, harder to build new supply, and has a generally richer demographic. Alas, buildings are still buildings, people are still people, and money is still money - Yes, even in NYC. Manhattan and Brooklyn have been on a tear during the boom. So much so that many actually began to believe that NY was somehow magically immune to real asset cycles. Developers have found a way around the supply issue as well. Just convert everything that stands into condos (NYC use to be a coop market). Those with short term memory must have forgotten the 90's, the 80's, and the '70s. NY residential real estate cycles reliably every ten years or so, give or take. Guess what. It's about ten years, and we have a free credit, cheap money, gentrification housing boom to make this cycle a doozy, both on the way up and the way down.

More on Short Term Memory

Prudential Douglas Elliman, a prominent NYC luxury real estate broker produces a monthly study as a marketing aid that recaps very recent property transactions. Now, if you follow the National Association of Realtors economists and reports, you should realize that those in the industry tend to run a bit, ahem, optimistic. Keeping that in mind, let me run down a highlight of the report for the month of September. Please keep in mind that the way things work in NY is akin to the following:

  1. marketing time increase to point of sale (product stays on market longer to sell)
  2. volume of sale decreases, as sellers refuse to lower prices to meet buyer demand
  3. concessions are given that usually do not show up in public record (seller's concession, private paper held back, furniture/antiques included in sale, etc.)
  4. publicly recorded prices finally drop.

By the time we get to point 4 above, the market has actually been slowing down and effectively dropping in price from an economic perspective from point 1, usually at least a year before. These facts are not reflected in statistics, and it will be hard to get realtors to admit it.

Published in BoomBustBlog
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