The Manhattan Real Estate Slump That Wasn’t

IT wasn't supposed to happen this way.

Just a year ago, as real estate brokers fretted through an ominously quiet third quarter, many Manhattanites waited for the housing market to reverse its madcap ascent and fall into line with the rest of the country.

But something happened on the way to the Great Manhattan Housing Slump. After what brokers optimistically termed a "pause" in the second half of 2006, buyers swarmed into the market. The torrent was so intense that by the end of this past June, it was clear that an astonishing gulf had opened up between Manhattan and nearly everywhere else.

On the national level, sales of existing homes slowed by 17 percent in the second quarter of 2007, compared with the second quarter of 2006, while inventory swelled by 16 percent, according to figures provided by the National Association of Realtors. New homes fared even worse: they fell by almost 19 percent, according to Commerce Department figures.

In Manhattan, by comparison, sales of new and existing apartments more than doubled. In a trend that could shift quickly in light of the recent problems in the credit and stock markets, inventory shed a third of its bulk. It dropped to 5,237 units, despite the influx of several thousand new condos, according to Miller Samuel Inc., the Manhattan appraisal company

Prices have been starkly different as well. By last month, the national picture was so dire that Angelo R. Mozilo, the chairman and chief executive of Countrywide Financial, the country's largest mortgage lender, said things had not been so bleak since the Depression.

Cut to Manhattan. After a boom with annual price increases of 20 percent or more ended in mid-2005, prices have continued to rise over all, but not as sharply. In the second quarter of 2007, Miller Samuel said the average sale price of a Manhattan studio climbed 16.5 percent compared with the second quarter of 2005. The average for a one-bedroom climbed by 18.4 percent and a two-bedroom by 5.9 percent.

Apartments with three bedrooms, which make up about 6 percent of the market but appeal to an ever-more-moneyed class of buyers, rose by 17.9 percent in the same period.

Major brokerages, including Halstead Property, Bellmarc Realty, Brown Harris Stevens, Prudential Douglas Elliman and the Corcoran Group, say they are recording sales and profits that rival boom-time results. In fact, Douglas Elliman and Corcoran predict that this will be their most lucrative year by far.

Whether this momentum can be sustained remains to be seen, particularly in light of the recent gyrations in the debt market, which have led to a reduction in the availability of large mortgages and to an increase in their rates. A deepening credit-market crisis and national housing slump could squeeze the economy, the stock market and bonus pools.

"For the first time in over a year, there is some negative talk - about the credit markets and whether or not this will permeate the New York City real estate market," said Pamela Liebman, president of Corcoran. "As of right now, it hasn't. There has been no slowdown." She said the biggest concern among her agents is finding enough inventory to satisfy demand.

But a buying binge alone does not a housing boom make. "I'm still not characterizing the market right now as a housing boom except in the upper echelon," said Jonathan Miller, president of Miller Samuel.

So how has Manhattan (and, to a lesser extent, sought-after pockets of Brooklyn) managed to avoid a slump?

"Obviously, the market was helped first by the rumor and the reality of bonus money," said Frederick W. Peters, president of Warburg Realty. He was referring to the fourth straight year of substantial bonus increases, particularly on Wall Street, that along with a rising stock market helped push buyers off the sidelines at the end of 2006 and caused some agents to cancel their winter vacations.

"But I also think we're just in one of those demographic upswing periods," Mr. Peters added. "More people are moving into the city, fewer people are moving out, and the rental market got much tighter over the course of 2006, which once again made buying a more attractive option. You put all those things together, and the market sort of entered the narrow part of the hourglass."

There were other factors to consider, too. Tourism is at record highs, and the local economy is doing well in general. And it's nearly as hard to find premium office space or a spot in private school as it is to find a family-size apartment.

But that's exactly what more and more families have set their sights on.