Manhattan's Housing Market
Starts to Show Some Cracks

New York City's residential market perhaps has started to crack. The average sales price of a Manhattan apartment fell 5.7% between the third quarter and the fourth quarter of 2006, the second consecutive quarter that prices have fallen, according to a new study.

Prices slipped 2.2% between the second and third quarters.

The report, released by appraisal firm Mitchell, Maxwell & Jackson Inc., showed the average price paid for a condominium or cooperative apartment in the fourth quarter fell to $1,079,363 from $1,144,024 in the third quarter and was down 4.4% from the same period a year earlier.

The average price of an apartment in full year 2006 was down 7.7% from the market's peak in the second quarter of 2006, the report said.

However, Jeffrey Jackson, co-founder and chief economist at Mitchell, Maxwell & Jackson, said it isn't clear how much further prices may fall.

Mr. Jackson said the residential market showed signs of some stabilization in the past two months as inventory, which had reached its highest level in more than 15 years in the third quarter, began to dissipate. He said a 7.4-month supply of apartments was for sale in December, down from 10.4 months in September. A six-month supply is considered equilibrium, with supply matching demand.

Between 2004 and 2006, more than 20,000 new condo units were added to the market, causing an inventory glut. But since this inventory has started to tick down, he said, speculation has somewhat subsided that the market could be facing a major correction.

He said the economy has remained strong, employment is healthy, wages are increasing, the Federal Reserve stopped raising rates and Wall Street bonuses were "exceptionally good," which bodes well for market fundamentals, he said.

On the other hand, the equity markets have been performing strongly, which lets investors get bigger returns from stocks than real estate. As a result, he said, many people may be reluctant to put their cash into real estate, when the residential market is uncertain.

Email your comments to rjeditor@dowjones.com.