Amid fears about the sagging economy and war in the Middle East, the New York real estate market started slowly at the beginning of 2003. But in true New York fashion, the market rebounded nicely and by the summer months was thriving. By year's end, Manhattan property was hotter than ever.

According to data compiled by Yale Robbins, Inc. and published in the company's monthly Condo Sales Report, the numbers in 2003 were impressive; there were 1,520 one-bedroom, 1,023 two-bedroom, and 406 three-bedroom apartments sold in 2003, for a grand total of nearly $3.5 billion in sales. By comparison, 2002 saw the unloading of 1,599 one-bedrooms, 958 two-bedrooms, and 526 three-bedroom apartments, for just over $3.5 billion altogether. By the end of 2003, the average price of a co-op or condo apartment in Manhattan was $850,745 - nearly identical to 2002's final average of $852,410, but with slightly higher prices per square-foot: $724 in 2003 versus $684 in 2002.

Jacky Teplitzky, executive vice president of Douglas Elliman, a Manhattan brokerage firm, saw a tale of two halves in 2003. The market remained steady during the first half but prices did not rise to double digit-numbers. "We had a very strong market in studios and one bedrooms in the first half of the year because interest rates were so low and people could afford more apartment for less money. Interest rates were around 5 percent for the first half of the year." And by the fourth quarter, says Teplitzky, the average sale price of a Manhattan apartment had risen by 11.7 percent.

"Without a doubt we can say it's the interest rates that are fueling the economy," agrees JoAnne Kennedy, president of Coldwell Banker Hunt Kennedy. "The biggest surprise to everyone is that the housing industry has remained so strong."

Gregory Heim, director of research and chief economist for Terra Holdings, which owns both the Halstead Company and Brown Harris Stevens brokerage firms, agrees. "I'd say that particularly in the second half of 2003, the market was exceptionally strong. Interest rates have remained favorable, and the economy has started to come back. The city has finally come out of a two-year recession during which it shed 200,000 jobs, so if a market can continue to grow while you're losing that many jobs, obviously people are very optimistic about what can happen."

Elizabeth Stribling, president of Stribling & Associates, Ltd., makes a similar assessment. "My thoughts are that 2003 really proved that real estate was continuing to hold its own in spite of global uncertainty and in spite of the stock market ups and downs. At the beginning of the year, with worries about potential war in Iraq and rental markets down, people were wondering what was going to happen," Stribling recalls. "But as the year progressed and the war was won, the economy came along with low interest rates and real estate started to rise during the summer and by the last quarter was on a tremendous upsurge as it entered the New Year. It was a solid, sound year."

According to Stribling's Mid-Year Luxury Report by senior vice president Kirk Henckels, sales in the $4 million and up residential market saw tremendous success. "Contrary to current public perceptions, the top tier of the luxury real estate market has experienced a resurgence the likes of which has not been seen since the peak of the frenzied 2000 market," Henckels explains. "There were eight cooperative sales over $10 million in the first half of 2003 versus four in 2002. Interestingly, these sales were at higher prices than in 2002," he says, adding that the top sale was $18 million compared to $13 million in 2002.

In regard to the supply of luxury properties in 2003 versus demand, Heim says, "There's a lot of luxury properties that have either gone up recently or are in development now, and there's a feeling that there may be a lot of them on the market at this time. You certainly couldn't say that their [value] is declining - it's just that the city has such a shortage of housing, this is one area where there doesn't seem to be a shortage of available units. It's not a surplus - they're not giving them away - but there are just a lot of them on the market at the same time."

Townhouses also sold well in 2003 - the top sale being $19.8 million versus $17 million in 2002.

Co-ops vs. Condos

Since there are three times more co-ops than condos in New York City, traditionally they are better sellers by sheer weight of units sold, but 2003 seemed to have very favorable numbers for both types of property. "Condos are usually people's first choice because a lot of buyers are really scared of co-op boards, or they don't want to deal with them, or they don't have the cash required by the buildings," Kennedy says. "But the problem is, there aren't enough condos to go around to all the people who want to buy them."

It seems that in 2003 condominiums became more popular because of the ease of their transferability with international buyers, who are a large part of that purchasing target market. The opening of the new Time Warner Center at Columbus Circle also made headlines, as it announced a record-breaking $45 million sale in the building for 12,000 square feet of raw, unfinished space for a British financier buyer. Prices for a typical two- to four-bedroom unit in the lavish new towers range from around $2 million to $10.8 million. New condominium inventory, reports Henckels, will also be available in the Delmonico on Park Avenue, at One Beacon Court on East 58th and at The Hubert in TriBeCa, to name a few.

"Condos are always more popular, but the fact of the matter is that they are 25 percent more expensive than the space of a co-op," contends Patrick Lilly, a broker with Coldwell Banker. "If you're looking for the best value and you're going to be a resident of Manhattan and you are a U.S. citizen, co-ops make more sense per square foot. But if you are a foreigner or you are using it as an investment property or if you want something like a brand-new loft, those are going to be condos."

Bidding Wars Return

A study by The Corcoran Group of its own inventory reveals that among active Manhattan listings available at the start of 2004 are half of what it was at this same time last year, and the number of listings have been on the decline since January 2003. "Low interest rates and huge Wall Street bonuses sparked a buying frenzy, and properties flew off the market," says Corcoran CEO Pamela Liebman. "A lot of smart people took advantage of the amiable market conditions resulting in a dearth of inventory. And since the market is still ripe for buying," Liebman says, "the challenge is finding properties for many clients who want to buy now."

While there are still around 6,000 properties in Manhattan for sale, according to Corcoran's in-house listing service, buyers last year at this same time had over 13,000 properties from which to choose.

According to Heim, "That's one thing that has kept - and will always keep - this market in check is the lack of new supply coming on the market. You will never be able to say that there's an over supply of housing in Manhattan or in the city. We've had a housing shortage forever here."

Another thing, adds Teplitzky, is that families that in the past moved to the suburbs after having a second child are now staying put. Another trend is the vitality of the city, and people retiring here because "they want to be where the action is."

And that, says Judith Thorn, executive vice president and sales manager of Warburg Realty Partnership, a brokerage firm based in Manhattan, means more buyers without a whole lot of new inventory. Open houses yield huge turnouts regardless of price, and properties that had been on the market a long time are being scooped up. All indications that prices may start to go up again, she adds.

In a tight market, Liebman offers a bit of advice to buyers. "If you see something you love, then go for it. That three-bedroom on Central Park West is only going to cost more the longer you wait, and with so little inventory, properties won't sit on the market for long."

What'll Ya Have?

Condos are not the only thing buyers were favoring in 2003. According to Teplitzky, such features as swimming pools, health clubs, high-speed Internet connections, terraces and garages are becoming huge assets. "Buyers want more than just a 24-hour doorman, says Teplitzky. "They are also looking for a gym, a roof deck, and storage areas. They are looking for value-added value." She says new construction projects now include wine cellars, private gardens, and playrooms for children. "There is much more inclination toward buying in buildings that offer more services."

Loft buildings - which used to be converted factory buildings - are now being built from scratch and becoming popular. "They have very pleasant lobbies and doormen and all the other accoutrements that Park Avenue buildings have," Thorn says.

"In terms of trends, the trend that has been going on consistently for the last couple of years are bigger and more luxurious bathrooms, bigger and higher-tech kitchens and a trend towards big windows," says Lilly. "Anything that's special always sells."

"Everyone wants a bargain," agrees Michael Shapot, a broker with Coldwell. "People want things that are undervalued and safe. Nobody is looking to pay the highest for anything. They want the worst house on the block or worst apartment in the building and then they can renovate and see upside potential."

Renovating a property seemed to be big last year as property became harder to come by. "After 9/11, people wanted the coziness and security of a home instantly so what moved quickly was renovated space," says Stribling. "But now that the property is becoming scarcer and people are feeling a little more confident with year-end bonuses and have expendable funds, they are taking a property and renovating again."

Running the Numbers

According to Elliman's Teplitzky, the average market price of a condo per square foot in the fourth quarter was $822 compared to $789 the previous quarter. Average sale price rose to $1,159 million for the fourth quarter versus $1,147 million for the previous quarter. The average co-op sale price stands at $776,514 and median sale price is $500,000.

Activity also was up in the luxury market, Teplitzky says, a factor which has not happened for a long time. The improved economy translates into more jobs on Wall Street. That, in turn, means better end-of-the-year Wall Street bonuses, thus making people feel more secure about purchasing a high-end luxury apartment.

According to Heim, "A lot of people believe that a lot of the fuel in the market was people trying to get in before rates rose, and that there's a "˜bubble' of people saying, "˜this is the last chance I'll have to get a mortgage this cheap' - but if this thing was really just a phenomenon, it wouldn't have lasted as long as it has. Wall Street bonuses are coming back, and earnings from stock exchange member firms are expected to rise at substantial rates compared to the last two years - those are two of the most important factors people look at when they try to judge what's going to happen. The city continues to be a safe place - people still want to live here, and I think that's a very important factor that in prior recessions, we didn't have. Services declined, crime went up, and I think that keeping the city safe is definitely a plus in keeping people wanting to come here."

All in all, it looks like 2003 was another red-letter year for New York real estate, even without some of the eye-popping deals that characterized the economic exuberance of the late 1990s and early 2000s. The stock market may fluctuate, and the overall economic picture may come in and out of focus, but New York City real estate holds value like few other investments. And that may just be the perfect tonic to keep New York's economy running on all cylinders.

Keith Loria is a freelance writer based in New Jersey.