America's Most Troubled Luxury Neighborhoods

Has the housing market scraped bottom? Not in some of the wealthier neighborhoods -- places like New York City's Greenwich Village, Santa Monica, Calif. and Chicago's Lincoln Park. They held up nicely while the rest of the country slumped last year. This year such Tiffany zip codes are on track to fall 15 percent to 25 percent.

Why haven't you heard about this? Statistics lag. With relatively low unemployment, high-end addresses don't have foreclosures to hasten capitulation. If they've attracted luxury high-rise developers, these markets may be propped up by recent condo closings at foolish prices agreed to two years ago.

But talk to experts who know the regions block by block -- or to people who've sold (or tried to sell) a home or co-op. There is a still-growing supply of wildly overpriced, unsold homes--60,000 U.S. properties priced above $2 million listed on Realtor.com. Experts get these gloomy vibes by dividing inventory by the current monthly rate of purchases.

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"Any result over seven months generally means falling prices," says David Stiff, chief economist at Fiserv in Brookfield, Wis. In some tony neighborhoods the level of glut is higher than the national average of ten months.

Unsold inventories in Manhattan are at their highest levels in a decade. You can't tell by looking at data about its condo market. According to Radar Logic, which generates national realty info from its New York City office, condo values fell only 4 percent last year -- far less than the 12 percent drop for the city as a whole. It's been held aloft by new-construction condo sales above the $1,200-per-square-foot level, says Radar Logic founder Michael Feder, reflecting deals struck a year or two ago. Once they pass through the system, the average price of a condo will plummet to $900 a square foot, reckons Feder.

In addition to the 10,500 properties already listed, there are another 9,500 in the wings, estimates Manhattan appraiser Jonathan Miller. Some 2,500 of these shadow listings belong to sellers who have some flexibility to keep their listings off the market in hopes of better pricing. Developers hold the rest. Both groups are likely to rush their listings onto the market once it's clear prices are falling.

Some folks can't wait. Françoise Pourcel, 62, listed her 2,100-square-foot Tribeca loft last August at $3.5 million, in line with the sale price of a similar unit on a lower floor of her building. In June she accepted a bid for $2.5 million.

Condo prices in Manhattan would have to fall 50 percent to return to values relative to rents they had in 1999, a relatively sane year in real estate. A condo owner could then lease his home and garner net rental income (rent minus property taxes, insurance and fix-up costs) equal to about 7 percent of the property's fair market value. The current yield is around 3.3 percent. Far too low.

It's a similar story in Lincoln Park, where single-family home prices slipped only 2.2 percent last year, far less than in the rest of Chicago. But inventory has since tripled. Wagner Appraisal Group figures there's a 16-month supply. A year ago "I was almost cocky about our position compared to the rest of the market," says Jennifer Ames. No longer. After 11 months of lowering the $2.1 million asking price on her 3,400-square-foot house, Ames sold it in June for $1.6 million.

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