Manhattan home prices on the rise - again

The price of an average apartment in Manhattan has hit more

than $1.2 million

April 3 2007: 9:34 AM EDT

NEW YORK (CNNMoney.com) -- The price of a slice of the Big Apple was on the rise in the first quarter, reversing a slight decline in the fourth quarter of 2006, according to several reports released Tuesday. Estimates of the average price of a New York City apartment ranged from $1.28 million to $1.36 million. Reports were issued by Brown Harris Stevens, the Corcoran Group, Halstead Property and Prudential Douglas Elliman.

Those prices represented increases of between 4 percent and 13 percent compared with the third quarter of 2006.

"The first thing we should do is thank Wall Street," said Tresa Hall, executive vice president of the Corcoran Group. Tremendous year-end investment bank bonuses - a total of $23.9 billion - poured an infusion of cash into the housing market. Transactions were way up. Prudential Douglas Elliman reported that sales increased 42 percent compared with the prior quarter. The time homes sat on the market declined 12 percent.

Given the increased activity, prices would have risen even more but for steady gains in supply, according to Jonathan Miller of the property appraisal firm, Miller Samuel, which does analysis for the Prudential Douglas Elliman report.

"Continuing new construction has come onto the market like a conveyor belt," Miller said.

Even with that continuous renewal, the housing supply has only kept pace with sales - inventory fell 0.2 percent during the quarter, according to Miller.

The luxury apartment market is particularly strong, as is the market for big apartments. The average price of four bedroom and larger apartments was $7.9 million, according to Brown Harris Stevens.

According to Prudential Douglas Elliman, three bedroom apartments averaged $3.6 million, more than twice as much as two bedrooms, which cost an average of $1.5 million.

"Large apartments are in such demand," said Diane Ramirez, Halstead's president, "and if you can combine two apartments, even better."The strong market has bucked national trends. National home prices in the fourth quarter were down 2.7 percent from a year earlier. Part of the market psychology includes a strong favorable view of city living.

A generation ago, much of New York's middle and some of its upper class were departing for the suburbs. Today, many empty nesters are returning, which, together with the city's strong attraction for young college grads, artists, media workers and other members of the sought after "knowledge economy," have revitalized life in town.

In addition, many of the middle class New Yorkers who fled the city did so to find affordable homes in safe communities with good schools. The near suburbs, however, have filled up and that's reflected in home prices; there is no longer a huge savings there, according to Miller.

Crime is no longer an issue in most of Manhattan; New York is one of the safest big cities in the United States and the neighborhoods where most co-ops and condos are sold tend to be even safer.

As for schools, Census Bureau figures, as reported in the New York Times recently, revealed a 32 percent increase in young children in Manhattan since 2000. Most of these families don't plan to leave when the kids reach school age. Many will undoubtedly enroll in private schools, but many parents are sending the kids to public schools as well, displaying a confidence mostly absent a decade ago.

Conditions seem to be in place that will keep New York property prices percolating. New York's Mayor, Michael Bloomberg, is projecting a population rise of nearly 1 million people over the next 23 years. That will put severe stress on the town's limited housing supply.

Greg Heym, an economist with Halstead Property, agrees that the fundamentals point to a strong Manhattan housing market for a long time. It's not just a strong stock market.

"We had several years in the early 2000s where Wall Street limped along," he says, "where housing markets stayed very hot."

So even if financial markets slow again, according to Heym, that doesn't necessarily mean Manhattan housing prices will tank. "Attitudes toward housing, in general, have changed," says Heym. "People see it as a long term investment now - particularly in Manhattan."

By Les Christie, CNNMoney.com staff writer