Sliding Manhattan home prices give sellers shivers as credit crisis deepens

Consider apartment 13C at 730 Park Avenue on Manhattan's storied "Silk Stocking" district. It has seven rooms, a fireplace, excellent nearby schools – and a price that has been cut 46 per cent.

The tale of 13C illustrates a role reversal of sorts underway in Manhattan real estate.

Sellers of property have called the shots for years on the 22.7 square mile island that is the financial capital of the United States. But now buyers are having their day, according to the first-quarter reports due from major real estate brokerages today.

In the fourth quarter of 2008, for example, resale median prices in Manhattan fell 9.5 per cent for condominiums and 5.2 per cent for co-ops compared with the third quarter of 2008, according to real estate website StreetEasy.com.

This quarter, they declined even more, both compared with the prior year's first quarter and sequentially, said Sofia Kim, the website's head of research.

From the market peak between the fourth quarter of 2007 and the first quarter of 2008, listing prices, typically higher than the selling price in a buyers' market, plunged between 10 and 20 per cent.

"I still don't think the market has bottomed out," said Kim, who expects prices to decline at least another 10 per cent. In the first quarter of 2009, the number of Manhattan homes in the market hit 15,460, a 41 per cent increase compared with the first quarter of 2008, according to StreetEasy.com data.

The reports are expected to reflect job losses on Wall Street, which have depleted Manhattan's pool of potential homebuyers, causing uncommon declines in real estate prices.

In February, New York City's unemployment rate rose 1.2 percentage points to 8.1 per cent from January, the highest level since October 2003, the state Department of Labor said last week.

The reports paint an ugly picture for sellers in the first quarter, when few credit-worthy buyers were prepared to step into the market, those privy to the reports said.

"This is the first quarter that we're really seeing price drops," said Pam Liebman, Chief Executive of the Corcoran Group, the city's largest real estate brokerage.

"These days, the buyers are feeling better than the sellers. The last couple of years, it was the other way around," Liebman said.

In a market where prices have steadily risen for years, "A seller today simply has to be the lowest in their category," said Brown Harris Stevens broker Elaine Clayman. "They have to understand that their apartment could be worth less in a month," said Clayman, who has seen rejected buyers return with lower offers, generating "tremendous frustration for the seller."

Sellers are struggling to accept this new reality, said appraiser Jonathan Miller, author of brokerage Prudential Douglas Elliman's market report.

Miller said that while sellers no longer put their prices at 10 per cent above their building's peak price, they are still reluctant to price their homes below that peak price.

"Sellers are still the farthest behind the market I've ever seen," Miller said.

Sellers must acknowledge the shrinking of the market in the aftermath of the upheaval on Wall Street, which cost jobs as well as billions of dollars in bonuses that financial services employees might have used to trade up to a new living space, said Paul Herrick, a real estate lawyer. He estimates his business in the first quarter was off 50 per cent compared with last year.

Already in 2008, Wall Street firms slashed bonuses by 44 per cent, cutting the total to $18.4bn from $32.9bn in 2007, state Comptroller Thomas DiNapoli said in a January report. With intense pressure on banks and other companies getting government bailouts to rein in compensation, that figure could head lower this year.

As a result, Herrick said, bonus buyers have gone missing from the market. Only "life event buyers," who got married or divorced or had a baby, remain.