12/02/08

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Forget talk of a housing bubble

If you're surprised by the next sentence, have a safe trip back home and thank you for visiting the Big Apple: The average price of a Manhattan apartment set a fresh record in June. Moreover, the average price of a luxury apartment in Manhattan topped $5 million for the first time ever. Housing bubble or not, the borough's residential market continues to boom with little slowdown in sight beyond the usual summer ebb.

The average prices of Manhattan co-ops and condos cleared $1.3 million in the three months ending June 30, according to a quarterly report by appraisal firm Miller Samuel for Prudential Douglas Elliman, an 8.5 percent increase over the first three months of the year. The average price per square foot reached a record $970, more than $200 above the average for the same period in 2004. Prices of co-ops, condos and luxury apartments all reached milestones during the second quarter.

It was difficult to find any place, in fact, where average or median home prices in Manhattan decreased, either in the month of June or in the second quarter of 2005.

Perhaps the most notable example of an increase came in the luxury market the upper 10 percent of all Manhattan co-op and condo sales prices. The average sales price leaped 36.4 percent from $3.8 million in June 2004 to more than $5.1 million in June 2005. The median sales price increased 26.4 percent between the same time periods, hitting a record $3.8 million, and the price per square foot cleared $1,700 on average, up more than $300 on average over the same time last year. Recent months saw particularly high-profile closings in the luxury market, including the record $44 million close by media mogul Rupert Murdoch on the Fifth Avenue penthouse once owned by the late Laurence Rockefeller.

Less than 1 percent of the estimated 10,000 apartments sold annually in Manhattan are priced at more than $10 million, but the jump in luxury prices can reverberate through cheaper markets.

"I think, by definition, the luxury market is more visible," said Miller Samuel president and CEO Jonathan Miller. "It gets more coverage. It often paints a picture of the rest of the market. It certainly does give buyers in the remainder of the market more confidence."

Dwellings at the other end of the real estate food chain also dealt with sharp increases. The average sales price of a studio was $380,073 for the second quarter, up from $321,417 for the second quarter 2004. One-, two-, three- and four-bedroom apartments all saw increasing prices in the last quarter, with the average price of a three-bedroom increasing nearly 33 percent over the second quarter 2004 to more than $3.5 million.

Low mortgage rates, availability, and the sheer desire to own Manhattan real estate which buyers seem convinced is now one of the surest investments in the nation continued to drive the residential market to its highs, according to real estate brokers and analysts. While the media may cluck about a housing bubble, that particular chicken has not yet come home to roost and may never, some brokers and appraisers say.

"There doesn't seem to be anything on the horizon economically," Miller said, "that's going to support some sort of large [housing market] correction."

A steady June flow of Manhattan listings generally supports this view, signifying that confidence in the market remains robust among sellers and their brokers.

The number of new listings on the East Side was almost unchanged from June of 2004, according to a monthly analysis by Halstead Property. Listings for East Side studios jumped 21 percent over the 12 months, while listings for one-bedrooms felt a slight decline and listings for larger apartments saw single-digit percentage growth.

The West Side, which saw sharp declines in listings at the start of 2005, saw only a 5 percent drop from June 2004 to June 2005, according to Halstead, and the Downtown market saw a 25 percent spike in studio listings over the 12 months. Downtown listings declined 10 percent from June 2004, but only largely because the sharp increases of that year were due to then-new development.

Handicapping the market month-to-month can be difficult, according to analysts. But the steady increases in average apartment prices and the even rhythm of listings seems to support the notion that, while the heady housing market cannot keep this pace indefinitely, a softer landing than the last market correction is more likely.

"The thing that really signifies a downturn in the real estate market is when people have to sell," said Greg Heym, research director and chief economist at Halstead. "If people don't need to sell, there really isn't going to be a massive decline or downturn, which is different than what happened in the last downturn, in the early 1990s, when people had to sell."