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A Tale of Two Markets

It was the best of times for real estate on the Island, but now Manhattan seems to be headed for an upswing Susan and Roy Sparber are looking to move to downtown Manhattan

"I've recently retired as a schoolteacher, and my husband works as an attorney in the city," Susan Sparber said. But first they must sell their South Merrick split ranch that they listed for $649,000 in August. Like many home sellers, the Sparbers are finding it's taking weeks longer to sell their house on Long Island these days. At the same time, they see a market in Manhattan that appears poised to take off. "We've noticed that the Manhattan real estate market is stronger than Nassau County's," Susan Sparber said. Indeed, as real estate experts look at what's ahead for the New York region's housing market this year, they point to two housing markets where prices are going in different directions. "There is a lot more room for appreciation in the city than on the Island," said Dorothy Herman, chief executive of the Manhattan-based Prudential Douglas Elliman, which has more than 50 offices from Manhattan to the Hamptons.

While the rate of annual price increases has slowed in many parts of the Long Island-Queens region, they are growing in Manhattan. Low interest rates, a tight supply of co-ops and condominiums, and a solid year on Wall Street pushed the annual price in 2003 up more than 10 percent. In 2004, "buyers will find it tougher to get an apartment they want and it will be more expensive" than in 2003, said Pamela Liebman, chief executive of the Corcoran Group in Manhattan. She also said that the demand for top-tier properties has risen in the past month or two. At the same time, however, the strong sales market has dampened Manhattan's rental market, with more renters taking advantage of the historically low interest rates to buy rather than rent.

For the past four years on Long Island and in Queens, the market has been sizzling with annual prices rising at double-digit rates - sometimes as high as 25 percent to 30 percent. At the end of 2003, the median price for existing homes in Nassau County was still an eye-popping $400,000 - but up only 12 percent from the previous year, according to the Multiple Listing Service of Long Island. In Suffolk County, it was $325,000, up 16 percent; and in Queens, it was $340,000, up 19 percent. While strong price growth is likely to continue, experts say, it appears that appreciation is starting to slow to a more traditional rate, a few percentage points above the local rate of inflation, which is running 2 percent to 3 percent. The median price on Long Island and in Queens has hardly budged since July.

Jeff Krasner, sales manager for Weichert Realtors Dallow Agency in Levittown, anticipates that prices will rise this year on Long Island by more than 5 percent. "People who think that house prices will continue to jump through the roof are being unrealistic," said Barbara Schultis, branch manager for Prudential Douglas Elliman in Merrick. Susan Sparber said she and her husband dropped their asking price to $629,000 in October. "Our agent told us to lower it; there were more houses on the market," she said. At the same time, Schultis said, demand remains strong and real estate agents expect to sell about the same number of houses this year as last year; but prices probably won't soar because the inventory has increased. Walter Messina, vice president of Glenjay Realty in Forest Hills, affirmed that prices are still appreciating in Queens at a solid pace - particularly in communities such as Forest Hills, Kew Gardens and Rego Park. But overall, prices are no longer climbing at their lofty rates of 2002 and the early months of 2003. Queens houses priced up to $650,000 still sell quickly, said Judy Markowitz, owner of RE/MAX Millennium in Flushing, but the market for houses above that has stabilized since August.

Meanwhile, across the East River, the median sales price for a co-op or condo in Manhattan was $580,000, up 10.5 percent for the year, according to the Fourth Quarter Market Overview released by Miller Samuel Inc., a real estate appraisal firm. Co-op prices reached the $500,000 mark for the first time, up 18 percent in 2003, and condominiums were up 4 percent for the year, to $752,000. While price appreciation in Manhattan co-ops and condos did not match that of Long Island and Queens for the year, it is about to take off again, said Jonathan Miller, president of Miller Samuel and author of the market overview. The number of apartments for sale continues to drop, down 19 percent from a year ago, to 4,843. Along with a tightening supply, Wall Street bonuses are fattening and mortgage rates remain low.

Last week, the average interest rate fell to 5.66 percent for a 30-year mortgage and 4.97 percent for a 15-year mortgage - the lowest levels since July, according to secondary mortgage giant Freddie Mac. Conversely, with interest rates remaining low, the rental market has been hit hard in urban areas, including Manhattan and Queens. Nationally, "the vacancy rate is the highest it's ever been," said Douglas Duncan, chief executive of the Washington-based Mortgage Bankers Association of America. The vacancy rate nationwide is at 9.6 percent and a similar scenario is holding true in Manhattan, especially in the studio and one-bedroom market, where rents have fallen 8 percent to 10 percent since 2001, according to the Corcoran Rental Report. Rents for larger apartments have rebounded since 2001, rising 5 percent to 8 percent, in part, as a result of landlords subsidizing the rent to lure tenants.

In 2003, there were not a lot of jobs created, and there were many luxury rental buildings completed in the city, according to Jacky Teplitzky, an executive vice president at Douglas Elliman. Teplitzky just leased a one-bedroom, 1 1/2-bathroom apartment at 3 Lincoln Center for $3,500. Two years ago, she said, she was able to get tenants in at $4,000 per month. On Long Island, where there is a shortage of rental units, rents have remained flat. In Suffolk County, rents were largely unmoved in 2003, and in Nassau they went up slightly, experts said. "It's a soft market, without doubt," said Jack Linefsky, property manager for Home Properties, a Rochester-based real estate company that owns and manages 3,400 midpriced apartments on Long Island. While the supply of property for sale in Manhattan has contracted, it has grown on Long Island and Queens. Long Island saw the number of houses for sale grow to about 50,000 by the end of 2003, up 20 percent from the same time in 2002. And in Queens, the number of houses grew by about 30 percent, to 20,000 units.

But experts add that while supply has grown on Long Island, the demand from first-time home buyers, including new immigrants, low interest rates and the dearth of new developments will protect the area from any major drop-off in prices. In any year, Long Island builders are lucky to construct 5,500 to 6,000 units, mainly because of the lack of available land, said Bob Wieboldt, executive director of the Long Island Builders Institute. Builders say they are confident that the stream of buyers who want to purchase housing units on Long Island will continue. And demand for new construction in the city's boroughs also appears strong, said Gerry Romski, counsel to the Jericho-based Beechwood Organization, based on requests for Beechwood's 600-plus two-family homes and condos in the Bronx. So, too, is demand for the two-family units in the 2,300-unit Arverne-by-the-Sea project in the Rockaways. "We don't anticipate a slowdown [in demand], although the big variable is the interest rates," said Peter Florey, executive vice president at the Benjamin Development Corp. in Garden City.

On a national level, David Lereah, chief economist with the National Association of Realtors, said that home prices climbed 8 percent in 2003. "There is no sign of a bubble on a national basis," he said, but a "nice slowing." Lereah estimates that the national appreciation rate will be 4.6 percent this year. Locally, many real estate firms say they broke sales and price records last year and expect to do comparably well again in 2004. Last year was "our best year ever," said Lawrence Finn Jr., president of Coach Real Estate Associates in Northport, among the largest firms on Long Island. Finn said he expects 2004 to be "another strong year for real estate," and while it will be hard to match 2003, "it will be close." While experts expect mortgage rates to gradually creep up this year, from 5.8 percent to as high as 6.625, they say this increase would not have a major impact on the housing market overall. John Dibs, owner of Ozone Park-based REMAX/Liberty, says his lower-income clients will be undeterred by a modest increase in interest rates. But buyers of higher-priced houses, which are on the market for $650,000 or more, probably will feel the impact because of larger monthly mortgage payments and higher consumer debt levels, adds Pearl Kamer, chief economist with the Long Island Association.

Still, Joseph Recchia of Bellmore, who listed his five-bedroom high ranch four weeks ago at $1.125 million, is not concerned. "I think the market is good and [mortgage] money is still cheap," Recchia said. Although people are being picky, he says, the market is still strong enough for him to sell his house for a good price. And in the lower-priced market - houses below $350,000 - prices shouldn't be affected by slightly higher interest rates, most experts agree. "Demand is so strong in this marketplace," Kamer said, "that prices are not likely to drop."



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