Market Review and Forecast Can Residential Real Estate Hold its Own?

After an era of giddy figures–with the average price of an apartment in Manhattan closing in on $1 million–New York City’s residential real estate market has started to lose its sense of certainty. Any broker asked about the state of affairs in mid-2001 would’ve responded things are just fine, thanks. None denied the boom was over, but they would invariably maintain the almost fail-safe optimism that characterized Manhattan’s residential market following the astonishing trends of 1999 and 2000. However, while evidence of an outright panic following the World Trade Center attacks didn’t materialize at the time, recent reports confirm that the real estate market did indeed take a hit in the fourth quarter of 2001.

While statistics from the major brokerage firms in the city show that sales volume remains somewhat steady taken as a whole, overall, both apartment sales prices and average time on the market have declined. The luxury market–already showing signs of a fall-out six months ago–remains bleak, and the downtown real estate market–despite original reports of business-almost-as-usual–did indeed take a bashing following September 11th. One reason for optimism: a trend towards purchasing smaller apartments is emerging in the winter apartment-hunting season, which began around Thanksgiving. Normally the deadest time for co-op and condo sales, the market is bursting with what Insignia Douglas Elliman’s Manhattan Market Overview calls the "shift in the unit mix." Despite the declines, activity for sales of smaller units is on the rise.

Glory Days

The year 2000 was a time during which Manhattan residential real estate maintained its legendary numbers. Continuing in and even surpassing 1999’s regal footsteps, 2000 represented an astonishing renaissance for New York City, during which every neighborhood was marketable. According to The Corcoran Group’s Year-2000 analysis, the residential market was resilient to stock market fluctuations and incipient worries about the national economy. With phenomenal 21 to 23 percent increases in the average sales price indices over 1999’s record-high levels, the report cited that a hunger for the Gotham lifestyle led to a 30 percent decrease in buyer negotiability–down to a mere 2.6 percent off asking price. It was a seller’s market in the purest sense of the term. New construction condos continued to raise the ceiling–and floor–on all property values market-wide.

Feeding the record-breaking prices was the higher standard of luxury lavished on new apartments, often exceeding buyer expectations. In existing co-ops, whether pre- or post-war, the trend toward high-quality renovations contributed to the softening of whatever initial buyer resistance there might have been.

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