Has the Housing Market Hit Bottom?

July 2, 2009— -- For months, New Yorkers have watched the rest of the nation suffer through the housing crisis while their own home prices remained stable.

Well, no more. Prices in Manhattan "fell off the cliff" at the start of this year, according to one of the city's leading real estate companies.

The median price for a Manhattan apartment fell 19 percent over the last year to $795,000, its lowest level since the second quarter of 2007, according to a report Thursday morning by Halstead Property. Luxury homes suffered the most, with an 82-percent decline in closings for more than $10 million at cooperative apartment buildings.

The sharp drop mirrors the plummeting of home prices across the country, putting in jeopardy the largest investment that many Americans make during their lives. Real estate experts believe the drop is at or near its bottom, but it could be some time before homeowners from Seattle to Miami see their values rebound.

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The Case-Shiller home price index, released earlier this week, showed, for instance, that U.S. home prices continued to decline in April -- an average of 18.2 percent in the 20 top cities -- but the pace of depreciation slowed. That was bright news for some who have been searching for a bottom.

Manhattan, for the most part, does not have subprime loans or exotic mortgages because many apartment buildings require large down payments and prohibit such loans. So when the subprime market collapsed, the city remained mostly immune.

But when Lehman Brothers filed for bankruptcy on Sept. 15, what was once a subprime housing problem exploded into a global financial crisis. Suddenly, multi-million-dollar Wall Street workers were out of jobs, out of savings or in fear for their livelihoods.

"That's really when New York got hit," said Diane M. Ramirez, president of Halstead Property. "We fell off the cliff like everybody else."

All of America Affected

Peter Morici, an economics professor at the University of Maryland, said that New York has now just caught up with the rest of the country. He said a bottom has been or is close to being reached nationally in home prices. But don't expect any quick rebound.

"We're likely to stay there for a while. The reason I say that is [that] we have 200,000 foreclosures a month coming up," he said. "The regions that have dropped the most are the ones that either have really distressed local industries like Detroit or the ones that bubbled the most."

Many families that once were looking for the largest home possible now are downsizing and looking for a home within their means.

"People are being more conservative about what they spend and they are saving more," Morici said. "You can't get around the fact that there is an excess supply of houses in the United States. Many more people had two dwellings in their name than needed them."

Real estate prices were also driven up for several years by an expectation that home values would keep going up.

"That's not there now," Morici said. "Nobody expects to get rich off real estate. When you bought in the '50s, you bought a dwelling, not an investment."

Home Prices Across the Country

As the old saying goes: All things in real estate are local. So here's a look, based on data from the National Association of Realtors, at some other big cities around the country and how they are doing in the first quarter compared to last year.

As a point of reference, the median price nationally for an existing single-family home is $169,000, down 13.8 percent from last year.