Inventory shortage stirs feeding frenzy in residential market

Real Estate Weekly, April 28, 2004 by Elaine Misonzhnik

It's the landlords' market in the residential world. Brokers say Manhattan apartments are going for the asking price or more and any new listing attracts crowds of people.

"I am glad to say that there is no part of the market that's not doing well. We are extremely busy right now and the price point keeps rising because the interest rates are so low," says Ken Malian, senior executive vice president of Douglas

Elliman. "We now have indications that the mortgage rates will pick up and that has added further incentive for the buyers to buy something before they [lose their chance]."

According to Douglas Elliman 2004 Market Watch numbers, average prices for Manhattan apartments have risen 10.6% since the last quarter to $998,905 and the price per s/f has risen by 3.6% to $731.

"We are in a feeding frenzy, there is a shortage of inventory," says Wendy J. Sarasohn, senior vice president with the Corcoran Group. "The low interest rates have encouraged a lot of people, plus the stock market is not performing that well so they are rethinking where they want to put their money. The day a property goes on the market, a crowd of people shows up to bid."

According to Sarasohn's colleague Patricia Warburg Cliff, another senior vice president with the Corcoran Group, many of the new deals are taking place downtown. The kind of people who are in the market right now are primarily first time home-buyers and middleclass families with kids who can't afford a swanky Central Park location.

"There is a big demand for things under $2.5 million, more on the southern end of Manhattan than in the north and more for condos than for co-ops," she says. "Because of the low interest rates, first time buyers make up 60% of the market. And they like downtown because it's a very attractive place to live--a lot of them work there so they can walk to work, they can go to the waterfront park on the weekends, it's a very youth-oriented area and the restaurants are great. What seems to be badly hit is the $15 million and up properties--those were being bought mainly by people with the huge bonuses, Wall Street CEOs and so on."

Elizabeth Stribling, president of Stribling & Associates, agrees that many of the current buyers are younger and less affluent than she is used to, but maintains that luxury properties are doing well.

"I don't know any statistics, but many people who would have rented before are now advised to buy because the costs are lower," she says. "Young people definitely feel that they should buy right now. People look at real estate today almost as a liquid asset. But I think that interestingly enough the most opportunities right now are in the Yorkville area, in the far East 80's and low 90's. That's the most affordable zip code right now and that's part of the very traditional Upper East Side."

Lisa Strobing, sales manager and executive vice president with Bellmarc Realty's Chelsea office, says downtown is the place where prices have really jumped up in the past few months.

"We have very limited inventory, particularly in Chelsea, so the prices are astronomical," she says. "For the buyers, it's actually better to look uptown--they would get a little more space and a better view for the same money."

Sarasohn, who specializes in high-end properties, insists it might no longer be possible to find an apartment in Manhattan for less than $1 million.

"I think that buyers need to be mindful of the fact that they need to have all of their financing in order and be prepared to pay the full asking price or more," she says. "People who are looking for good deals should not be in the market right now."

On the other hand, the rental market is still in the doldrums, partly because of the interest rates and partly because there is too much product.

"Rentals are still in the slump, though they are supposed to be improving," says Cliff. "Right now it's cheaper to buy and it's a better investment. And there have been so many rental properties put on the market recently--whole buildings are sitting there finished. I think that if people want to buy before interest rates go up it's the moment and [they are aware of it]."

"There is an enormous amount of renting stock--in the West 50's, downtown ..." says Stribling. "But it's coming along a little better than last year--people who are losing on the bids to buy something, decide to rent for a year."