Fearless Predictions for 2008

Dec 18, 2007

Will Manhattan real estate prices finally drop in 2008?

They certainly remain on the decline in most other parts of the country. Housing starts fell 3.7 percent in November, with construction of single-family homes sliding to the lowest level in more than 16 years.

Several leading economists believe that the housing slump has been weighing down the general economy, the economy, which some analysts fear is on the brink of recession.

But here are three reasons why the housing slump and shaky U.S. economy may not lead to price decreases for Manhattan real estate in 2008.

(1) Higher Wall Street Bonuses

Although shareholders in the securities industry are having their worst year since 2002, Wall Street is still paying record bonuses, totaling almost $38 billion.

The money, split among about 186,000 workers at Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co., Lehman Brothers Holdings Inc. and Bear Stearns Cos., equates to an average of $201,500 per person, according to data compiled by Bloomberg. The five biggest U.S. securities firms paid $36 billion to employees last year.

This money has to go somewhere. As usual, a good chunk will end up in the real estate market.

(2) Increased Foreign Investment

The depreciating U.S. dollar continues to encourage foreign, particularly European, investors to snap up new Manhattan properties. Once the dollar recovers, their luxurious condo investments are going to look even better!

(3) Low Inventory Levels

Although properties are taking longer to sell in this market, there has yet to be a flood of new homes hitting the Manhattan real estate market. This may change somewhat as we enter 2008. Nevertheless, the limited supply augurs well for prices to hold up quite nicely in the near term.

All told, I do not see the Manhattan real estate market taking a tumble in 2008.

Indeed, lower mortgage rates and stable pricing may encourage first-time buyers to finally get in the market.

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