Keeping your cool in a red hot market

Real Estate Weekly, April 28, 2004 by Karen A. Berman

Three words describe the residential housing market in New York City: hot, hot, hot.

Both average apartment and median apartment prices are at record levels, there is a lack of supply and strong demand. If recent history is any guide, factors driving up prices will remain.

Low mortgage rates have been a prime force in this cycle of price increases.

With hints of the economy heating up and possible inflation around the corner, interest rates could rise slightly, acting as a short-term stimulus to buyers and bringing fence sitters into the arena.

This would repeat the activity of a year ago when mortgage rates rose slightly and buyers wanting to grab the still unbelievably low rates jumped in believing that the rates had bottomed out.

Still, the prime issue is lack of supply.

Even with the low mortgage rates, prices are going up so quickly that many couples looking to trade up are now staying where they are.

Another factor, most people who wanted to sell and move from the city or empty nesters looking for a smaller apartment have made their move.

This is counterbalanced by a trend we are starting to see of couples who moved out of the city with their young families for the trees and backyards of suburbia finding the greenery not as appealing as an exciting Manhattan lifestyle and moving back.

How fast are apartments moving? Wendy Friedmann, one of our brokers, had a weekday open house recently for a studio in the Union Square area and sold the apartment quickly at the asking price to the first-person who came in. Though the studio was priced to-ward the high side, that was no barrier.

Pricing is key, says Sheryl Berger, another of our brokers. "Except for an exceptional apartment, there is a range that apartments are selling in and buyers will hold off if the initial price exceeds the range."

Sheryl says this shows the importance of having an experienced broker who understands what is happening in the market and can determine the right initial pricing.

Apartments priced too high are not selling quickly, even in this market, and these units quickly become stale, says another of our brokers, Jodi Nath. "Buyers start wondering about any apartment that has been on the market three or four weeks," she says.

"That shows how fast this market is and also the importance of correct pricing. In the less expensive apartments, we have seen a difference of $10,000 make a sale more difficult."

On the higher end of the market, we are seeing some astronomical prices and bidding wars breaking out.

Parents helping their young professional children buy an apartment is another continuing trend.

With the low mortgage as an attraction, they see this as a good investment, preferable to spending as much on monthly rent.

This has spiked up considerably in the past year after an earlier hesitancy by parents to have their children come to the "Big Apple" after September 11.

The rental market has stabilized-though it's still a bit weak--with many renters looking for good deals.

We are also seeing increased interest from renters in properties owned by the Argo Corporation who are contacting us wanting to buy their apartments, which they now see as a smart investment.

People are also expanding the boundaries of where they would consider renting or buying.

Broker Linda Lepson reports that there is considerable interest in Washington Heights, Hudson Heights and Inwood in northern Manhattan, where two-bedroom, two-bathroom apartments are now going for $425,000, much less than downtown, but still significantly higher than previously.

Can this continue? Viewed from an historical perspective, long-term investment in New York residential real estate is still one of the best investments. Even if we see a slight correction after interest rates climb a bit, or if there is another downturn in the economy, the long-term view is excellent.

Bottom-line: This is still a good time to buy.

BY KAREN A. BERMAN, VICE PRESIDENT, ARGO RESIDENTIAL