The Volkswagen of Manhattan Apartments is Sputtering

Fewer $1 million Manhattan apartments traded in the first half of 2008 than in the first half of 2007. Though the difference wasn’t titanic, it signals another hurrah for a housing market in full adjectival decline.

The total number of closings on $1 million-plus apartments fell from 3,569 in the first half of 2007 to 3,347 during the first half of this year, a 6.22 percent drop. Still, almost one out of every two Manhattan apartments sold in the first half of 2008 traded for at least $1 million. The numbers are based on analysis by research firm StreetEasy.

And prices only increased on average. The average sales price for million-dollar apartments jumped 22.9 percent from the first half of 2007 to the first half of 2008, from $2,380,850 to $2,925,053. The median price also increased, by 9 percent, from $1,690,000 to $1,842,500.

Few should be surprised that the Manhattan real estate market continues to defy the flagging national and local economies. Despite a precipitous decline on Wall Street, the real estate market remains buoyed by a weak dollar and a generous bonus season in 2007 that seems to have carried over into the 2008 Manhattan real estate market.

Derrick Gross, a business analyst at StreetEasy, attributes the high average and median prices to the mind-blowing sales figures at high-priced new developments such as 15 Central Park West and the redeveloped Plaza.

“The high price figures,” Mr. Gross said, “have something to do with the really high end, not just 15 CPW and the Plaza, but a lot of townhouses and other new developments, too.”

While 15 CPW remains the bastion of mega-wealthy financiers (Sandy Weill) and moneymaking rock stars (Sting), the million-dollar apartment is becoming something like the Volkswagen of Manhattan real estate: an apartment for the masses. According to the statistics compiled by StreetEasy, sales of million-dollar-plus apartments accounted for nearly 50 percent of all Manhattan apartment sales during the first half of 2008; $1 million-plus apartments absorbed 44.1 percent of the apartment market in Manhattan from January to June of this year, a jump of almost 8 percentage points from the same time in 2007.

But how long can the good times roll?

Many of the driving factors of the Manhattan real estate boom have sputtered famously to a halt.

In 2006, Wall Street’s top investment banks awarded a record $33.9 billion in year-end bonuses; and 2007—despite the turbulent economy toward the end of the year—was not far off, with $33.2 billion.

So much for all of that.

One of the investment banks (Bear Stearns) won’t be around in a few months to award 2008 bonuses, and Frank Braconi, chief economist at the city comptroller’s office, predicts that bonuses will fall by at least 30 percent from 2007, which would put the total at something closer to $20 billion. The troubled Wall Street economy and credit squeeze have increased the Manhattan market’s reliance on foreigners. There are questions as to whether that foreign investment, so plentiful in years past, will be enough.

Mr. Gross, for one, expects that sales and prices will hover at their current levels through September, but both will start dropping sometime in the early fall. Prices could tumble eventually, he says, by 10 percent over the next year—or $100,000 off a $1 million apartment. “When people realize they aren’t going to sell their property is when they will reduce their price.”

ohaydock@observer.com