From the Financial Times:

Manhattan shows first cracks

As the US housing slump deepened over the past three years, Manhattan’s real estate market seemed immune. Instead of crumb­ling with the rest of the nation, prices continued to rocket. Sales surged and new condominiums found multiple bidders. For a long while, Manhattan property was in an orbit all of its own.

But there are growing signs that this last bastion may be giving way. New York City, the seemingly indestructible foundation of the nation’s luxury property market, has this year begun to shown signs of strain. In the second quarter, traditionally the hottest property season, sales slumped 38 per cent to a five-year low, according to the Corcoran Group, the city’s largest residential real estate group.

“Two years ago, you could throw up some brick, put in a kitchen and a bath, put a price on it, and you’d have a bidding war,” says Pamela Liebman, Corcoran’s chief executive. “That’s not the case any more. Buyers now feel that a property they want today could cost less tomorrow.”
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According to Miller Samuel, a New York residential real estate appraisal company, some 6,869 apartments were for sale in Manhattan in the second quarter. That is 11 per cent more than the first quarter – and a full 31 per cent more than the second quarter of last year.

While some of the rise results from new developments coming on line, much of the latest increase has to do with existing co-operative properties sitting around for months on end. Co-op inventory, which mostly consists of resales, rose at a quicker pace than condo stock did in the second quarter.

In another disturbing sign, homes are staying on the market for longer. Miller Samuel reports that, from April through June, properties were listed for an average of 135 days – nearly three weeks longer than in the same period last year. “We may go through a cycle now where product will sit on the market,” Ms Liebman says. “There’s little room for error in a market like this.”
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But as yet there is no sign of let-up and the grim mood in Manhattan has spread throughout the region. Consider the softness recently seen in the Hamptons, the Long Island beach retreat whose fate is closely tied to the fortunes of Wall Street. According to data compiled by Suffolk Research Service, the market saw both price declines and slower sales in the second quarter than in the same period last year.

The price drops were even steeper for these beach homes, whose median price fell 11 per cent to $735,000, from $825,000 last year. What is more, volume took a hit for the fourth straight year. Only 576 homes sold in the second quarter, a 29 per cent drop from last year.