BIG APPLE BUYS

BY NICK BURRY

While most of the country is suff ering real estate-related woes, New York City is managing to beat the mortgage crisis.

After years of growth reminiscent of the halcyon days of the dotcom boom, the national housing market hit its peak in the fourth quarter of 2005. What was once a bonanza that spawned legions of house-flipping millionaires and dozens of cable TV real estate programs is now characterized by gloomy buzz-phrases like “looming foreclosures,” “mortgage crisis” and “sub-prime woes.” Cities across the country that enjoyed red-hot real estate markets only three years ago are waking up with hangovers. Overbuilt housing stocks sit unsold as prices fall and foreclosures rise. And then there’s New York City.

According to a report compiled by Prudential Douglass Elliman, the average price for a Manhattan apartment grew from $1.2 million in the fourth quarter of 2006 to $1.4 million in the fourth quarter of 2007—a record increase of more than 17%.

These numbers suggest that the city is not just weathering the real estate storm, but actually thriving in it. This begs the question: Could New York City be immune to the national housing crisis?

“Last year was one of my best years,” says Stan Gerasimczyk, an 11-year New York City real estate veteran and vice president of the Corcoran Group. “People still want to be here. Young people are still coming to the city.”

But while a steady influx of fresh-faced dreamers has always made New York a socially and economically vibrant place, young transplants are not necessarily the target demographic for multimillion-dollar condos.

Gerasimczyk also points out some reasons why the Manhattan market saw such a sharp jump: “With the pound and the euro so strong against the dollar, European investment has kept the prices rising. Also, large luxury conversions like The Plaza Hotel have set record numbers.”

While foreign investment and billion-dollar conversions have buoyed average apartment prices, there are some signs that the boom is waning. According to the Elliman report, when the two largest luxury conversions (The Plaza Hotel and 15 Central Park West) are excluded, the increase in the median sales price from the fourth quarter of 2006 to the fourth quarter of 2007 was a modest 5.1%.

Additionally, the bidding wars that once generated multiple offers over asking price seem to have deescalated. Yet, according to Frank Tamayo, a senior loan officer at the mortgage firm Trachtman & Bach, these are actually good signs.

“Right now we have a recipe for a lot more transactions: Sellers are more willing to negotiate, and interest rates have come down significantly. That should make for a healthy real estate market,” Tamayo says. “In the last couple years, people were making offers on real estate backed by loans that they couldn’t aff ord, which helped lead to artificially inflated prices.”

Realistically, though, how does a real estate market remain healthy when the median price for a Manhattan apartment is $850,000? Perhaps the answer lies across the East River. “One of the biggest trends of 2007 was the increase of new developments pushing deeper into the boroughs, specifically Brooklyn and Queens,” Gerasimczyk says.

The Corcoran Group’s 2007 year-end Brooklyn report found the average apartment price had increased by 8% to $661,000—modest growth, and significantly more aff ordable than Manhattan. Much of that growth was generated by new developments in swanky neighborhoods.

Outside of the hot areas, prices have leveled off , which, depending on your viewpoint, can either be seen as a sign of recession or an opportunity for buyers with moderate incomes. “If people can’t aff ord Park Slope, they’re looking for good deals in places a little further from Manhattan like Windsor Terrace, Kensington, and Bedford-Stuyvesant,” Gerasimczyk says.

Tamayo also sees the near future as a time for increased volume in the mortgage field. “With interest rates falling, people who were sitting on the fence are deciding that now is a good time to purchase,” he says. “Over the lifetime of a loan, .5% diff erence on your interest rate makes a dramatic difference.”

It certainly appears that 2008 will be a pivotal year for New York’s real estate market. Although no one seems to be predicting the breakneck pace of a few years ago, there are indications that the city is poised for a sensible appreciation and a growing volume of transactions as a result of new developments, favorable interest rates and steadying prices.

But then again, this is New York City. When people are willing to pay half a million dollars for what amounts to a walk-in closet, rational predictions don’t always hold water.

ADVICE FOR PEOPLE ENTERING THE MARKET

-Stay away from adjustable rate mortgages (ARMs). If you can afford the fixed rate, go for it.

-Banks are now requiring a lot more documentation for loans.

-Don’t have your heart set on a particular neighborhood. Explore other areas and you may be pleasantly surprised by the deals/amenities you find.

AND A NOTE TO SELLERS:

-Price your property at the going market rate. You don’t want your property sitting on the market for a long time and going “stale.”