We’ve sharpened our pencils, bought new notebooks and are ready to get back to business as usual in September 2006.  For the better part of this year, we’ve been a market in transition.  What lies ahead for Manhattan real estate?  To answer, a review of the recent past will help.


The years just behind us of 2004 and 2005 were among the hottest markets ever.  They were heady times with historic highs for price appreciations and equally historic lows for mortgage interest rates.   Easy credit and ever rising plateaus contributed to a sizzling and overheated market.  There were steady price increases from sponsors on new developments, and brokers and sellers were pricing ahead of the market.  Open houses attracted crowds of buyers, and competitive bidding became commonplace with many deals trading at 10% above the asking price.  The spikes in the marketplace were spectacular, and the pace of trading was frenetic.  All the while, there were dramatic headlines of boom and bust, but 2005 turned out to be the year of the bubble that wasn’t.  The Manhattan market did not tank, and this year has been all about returning to balance and stability with unhurried deal making and a slower absorption rate.   


While the volume of deals declined this year, prices have remained level.  As new construction competes with resales, there’s more inventory to consider, so it’s taking longer for properties to sell.  Instead of last year’s 4-6 week average for days on the market, it’s taking 4-6 months and longer to sell.  Instead of multiple price increases at new developments, sponsors are offering concessions to attract buyer attention, and a handful of developers are even filing price reductions with the Attorney General’s office.  At the beginning of the year, there was a buyer lethargy that continued through February.  In March and April, sales rebounded and by May, a significant up-tick in trading at high prices was confounding the pundits who had been predicting a bursting bubble.  In mid-June, a seasonal deceleration began, and like last summer, activity dropped as some properties languished on the market.  


At the same time, economists tell us that inflation is being managed, there’s growth in most industry sectors, and consumer confidence is rising.  Yet oil prices are higher than ever, the stock market volatile like always, and as of this writing, the international news especially in the Middle East is particularly disquieting.  In addition, interest rates have been inching up steadily.  According to Freddie Mac, by mid-July, the rate on a 30-year fixed mortgage had risen to 6.7%, the highest since the spring of 2002.  For the balance of the year, these rates are expected to average 6.9%.    


Former Federal Reserve Chairman Alan Greenspan called the boom times “froth” and predicted that the “irrational exuberance” caused by overvalued properties could not be sustained.  This July, his successor Ben Bernanke described the housing “downturn” as “orderly.”  Nonetheless, David Lereah, National Association of Realtors’ chief economist expects this year to be “the third strongest on record” and that “we should see sales rising and falling month to month” without “any big shifts one way or the other.” 


What lies ahead for Manhattan real estate? 


The next three months leading up to Thanksgiving 2006 and the new year of 2007 should present multiple prospects for buyers and sellers.  Market activity has slowed to a sustainable pace.  A new crop of properties is coming to market since sellers have been waiting until after Labor Day to list.  The time for active looking and decision making is from now until the distractions of the holiday season.  In a stabilizing environment, buyers who have been on the fence will be more comfortable to commit to purchasing.  They are advised not to fear jumping into the market at any point this fall and winter.  Those who continue to nurse sideline mentalities will miss opportunities. 


Prices are expected to rise modestly or remain flat.  Properties in mint condition will continue to rule the roost, and will be the ones to sell most easily, assuming they are priced realistically.  All segments of the market are expected to remain strong, and the one and two bedroom category will gain particular strength from an ever-tightening rental market.  Overpriced properties leftover from last season will continue to be reduced until they are absorbed or removed from inventory.  Barring the unforeseen, New York will continue to thrive, and quality real estate will retain its value and endure.