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Manhattan’s Brisk Year-End Real Estate Sales Belie Bad Economy, Not Good One

At first blush, the fourth-quarter Manhattan market reports would seem to be evidence of a holiday miracle: co-op boards were overwhelmed by contracts, inventory plummeted, prices skyrocketed and a tremendous amount of money changed hands.

Manhattan ended 2012 with a grand finale: more fourth quarter sales than it has seen in 25 years, according to Douglas Elliman, and the lowest level of inventory in more than a decade. Alas, as is increasingly the case in the Manhattan real estate market and the city at large, the wealth was not spread out evenly when it came to end-of-the-year closings. The trophy market, while shining brightly, is something of a false beacon when it comes to the Manhattan real estate. It illuminates the seemingly unshakeable good fortunes of the world’s wealthiest, but does not reveal the decidedly uncertain recovery and unstable footing of the financially struggling masses.

These were not one-bedrooms facing air-shafts or second-floor studios changing hands at such a hurried speed during the last three months of the year, but sprawling co-ops in white-glove buildings. The fourth quarter saw 37 closings above $10 million, the majority of them on the Upper East Side, according to Streeteasy. There was also a 142 percent increase in the number of contracts for properties above $10 million. And buyers certainly had their pick: in 2012, 644 properties priced above $10 million came on the market, the highest number in the last five years.

Viewed purely as an increase in sales volume and prices, the numbers might seem more encouraging than they really are: high-end sales pulled the average Manhattan sales price up 7 percent (to $1.48 million) over the fourth quarter of 2011, according to the Halstead market report, and the media price up 6 percent (to $836,000). Both time on the market and price cuts decreased. It was, as the Streeteasy report notes, the best year for real estate since 2008 (even if the median price in 2008 remains 9 percent above the 2012 median price).

It’s too bad that the frantic pace of fourth quarter closings was not a sign of economic optimism, but rather pessimism: a last ditch attempt on the part of the haves to have more before the tax codes changed on January 1. And while no one would buy or sell a luxury condo for a favorable tax rate alone, the change means that many sales that might otherwise have closed in the first quarter of 2013 now belong to the previous year’s tally. Fear of the fiscal cliff caused a flurry of activity, which is unlikely to be repeated in the New Year, despite the fact that we did not fall over said cliff. In 2013, the capital gains tax will go from 15 percent to 23.8 percent, reducing any sense of urgency to sell trophy properties. Low mortgage rates, which helped to fuel sales in 2012, are also likely to rise this year.

“With the upcoming changes in tax laws, record low interest rates and the inventory of available apartments at 30% below where it was a year ago, the incredible activity in the fourth quarter was not surprising” said Hall. F. Willkie, president of Brown Harris Stevens Residential Sales said in a statement about the market reports, noting that the brokerage’s report does not include the few substantial sales that closed in the very last days of the year, which would likely bring the total even higher.

However, other market analysts cautioned that the activity at the very top and bottom of Manhattan’s real estate market does not mean that the market is healthy or well within recovery mode. Besides the luxury market, the only other strong category are entry-level apartments , largely purchased by people who were pushed into the sales market by record-high rental prices. Mid-range apartments remain oddly untouched. “At best, the recovery is nascent, fragile and fragmented,” the Streeteasy report warns. “In a healthy market… buyers from all segments… would be clamoring to take advantage of the record-low mortgage rates.”