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The robust New York real estate market

It was a slow climb up after the crash in 2008, with the momentum building over the past couple of years to reach a tipping point where Manhattan hit record low levels of inventory in 4Q 2012.

After the Wall Street crisis in 2008, the Canadian real estate market barely skipped a beat, but New York and the rest of the country suffered. The few Manhattan sales that did occur in the months following September 2008 were discounted by as much as 25%.

The upswing

More recently, 1Q 2013 has been a period of banner sales with bidding wars and rising prices. Market conditions New York hasn’t experienced with such exuberance since 2007. According to the Elliman Report, a Manhattan real estate sales report prepared by Miller Samuel Inc., “Sales activity expanded despite plunging listing inventory. Supply continued to decline as listing inventory dropped 34.4 percent from the same period a year ago, the steepest drop in the 12 years this metric has been recorded. However, the number of sales increased 6.3 percent to 2,457 as consumers fought tight credit conditions to take advantage of low mortgage rates.”

Miller Samuel Inc. continues with, “All price indicators posted year-over-year gains. Median sales price rose 5.9% from the same period last year to $820,555.”

Luxury pause

The flourishing market conditions are similar across all market segments, however, the luxury market which represents the top 10 percent of condo and coop sales, showed a negligible decline in median price from $4,125,000 in 1Q 2012 to $4,015,000 in 1Q 2013 and a more significant decline from $4,440,150 in 4Q 2012.

This downward adjustment is best explained as a resting period after a flurry of high-end sales rushed to close in 4Q 2012 to beat an increase in capital gains tax effective January 1st. Another key factor is a shift in motivation. Prospective sellers witnessed a fast moving market at the end of 2012 and seized the opportunity to sell at a premium. As a result, 1Q 2013 listing inventory for the luxury sector increased 7.6 percent over the previous quarter. The additional inventory took some pressure off buyers to respond quickly, but not completely since the inventory for luxury homes is still down 15.4 percent from 1Q 2012.

Low Inventory

The sharpest decline in listing inventory is in the new development sub-category which fell 41.7 percent from the same quarter last year. For a few years after the crash, new development projects were put on hold while developers had a wait and see attitude. It’s only recently, that new developments came to market. Developers are playing catch up to provide sufficient supply and they’ve conveniently stumbled upon a pent up demand that’s allowing them to fetch top dollar for each new project. Accidental or planned, the delay in building has paid off for the developer as new development prices far exceed peak 2008 benchmarks.

Loft Increase

The Manhattan loft market segment experienced an 8.8% increase in median sales price and a 20.3% increase in average sales price over the prior year quarter which is the highest average price increase of all market segments. This growth underscores the continued high demand for loft style living which is unique to the downtown market.

Condo vs Coop

Condos saw a 13.8 percent increase in median sales price from the prior year quarter and coops increased a modest 1.9 percent. One of the quirks of Manhattan real estate is the infamous coop. 75 to 80 percent of home ownership in Manhattan is in the form of a cooperative. The remaining 20 to 25 percent are condos. Condos offer freehold ownership and coops generally have restrictive policies.

The flexibility of freehold ownership and the low availability of condominiums make them more desirable, which creates a price variance for the two types of ownership. The average price per square foot for a Coop in 1Q 2013 was $925 compared to $1377 per square foot for a condo in the same quarter.

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