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NEW YORK (Reuters) - It took war, the worst financial crisis since the Great Depression and the collapse of some of New York's famed investment banks, but Manhattan apartment prices are finally falling.
After months of looking at half-million-dollar apartments the size of a walk-in closet back home in Pennsylvania, Michael Germano noticed prices suddenly became negotiable and brokers no longer scoffed at lower offers.
"It probably started at the beginning of November, but things over the last three or four weeks have changed even more dramatically," said Germano, 30, a Smith Barney financial adviser.
"I pulled up one of the major New York brokerage firm's websites and did a search. That same search a couple weeks ago returned about three pages of listings and the other night it returned six pages, and the prices have come down noticeably over a couple of weeks," he said.
Manhattan -- a slender island of 1.6 million people sandwiched between two rivers -- has long defied real estate downturns in the rest of the United States. The New York City borough's tiny apartments and luxury townhouses remain in constant demand due to its standing as a center for international finance, culture and entertainment.
While housing prices in 20 metropolitan areas fell nearly 24 percent from their peak in May 2006 to October 2008, according to the Standard and Poor's S&P/Case-Shiller Home Price Index, Manhattan brokers kept reporting prices going up. The average Manhattan apartment costs about $1.5 million.
Brokers and buyers say the financial crisis -- most acutely symbolized in New York by the collapse of Lehman Brothers in September -- has finally shaken up Manhattan.
"I haven't seen this kind of market since the '70s," said Marilyn Harra Kaye, president of MLBKaye International Realty, a broker in Manhattan for more than 25 years. New York City lost 10 percent of its population in the 1970s when the city's finances almost collapsed.
Prices of existing Manhattan apartments fell nearly 4 percent in the fourth quarter, according to Prudential Douglas Elliman's quarterly report and those prices appear higher than they are in reality because of the months-long lag between when a deal is negotiated and when it closes.
Average prices of units that are under contract but have not closed have fallen 20 percent since August 2008. Dottie Herman, chief executive of Prudential Douglas Elliman, sees a possible price decline of 20 percent to 25 percent afflicting the entire Manhattan market in the first quarter.
Germano said he recently got a seller to reduce his price by one-third but is still looking for another deal.
"I don't know that anyone's ever seen anything like this," said broker Ray Schmitz of Coldwell Banker Previews International. "We had a temporary downturn after (the attacks of) 9/11 and then the panic passed and everything was business as usual."
Editing by Mark Egan and Peter Cooney