Luxury Segment Sees Boost in Activity

While inventory remains low throughout Manhattan, the residential real estate market continues to experience significant price jumps, and the luxury segment has been particularly active in recent weeks.

Jonathan Miller, president of the appraisal firm Miller Samuel Inc. and author of the Douglas Elliman Manhattan Market Overview, called the lack of inventory a “chronic” situation, with supply contracting nearly every month of the last year.

The limited supply has created “significant price jumps” since December, Miller said. With multiple bids on properties, “it feels like 1999 again,” he said.

More recently, the luxury market, comprising properties priced over $4 million, has also become more active, Miller said in mid-March.

“In the last four to six weeks, we ve seen a little surge in properties north of $5 or $6 million going to contract,” he said. “The market over $4 million only represents 2 percent of total transactions, but we re seeing more sales activity there.”

He described the preceding months of the luxury market as “pretty much in neutral” since the second quarter of 2003, when there was renewed activity following the war in Iraq.

“I think the upper end of the market now reflects more of a long-term optimism,” Miller said. “It s also a reflection of Wall Street doing better.”

Kathy Korte, manager of Sotheby s midtown office, agreed. “I ve had more $5 million deals go to contract since early-to-mid-December than in the six months prior to that,” she said.

She also said the main reason for the increased activity is Wall Street. “Corporates are reporting strong profits again,” she said. “Before, you might have had a bank president who didn t want to move because there were layoffs at his company, and that would be sending the wrong message.”

A recent report released by Stribling & Associates put the luxury market uptick a little bit earlier, saying that market activity increased dramatically in the fall of 2003, with several high profile sales on Fifth and Park Avenues, including at least one over $20 million.

“This past year evidenced significant gains in luxury real estate sales, particularly in the latter part of the year,” said Kirk Henckels, director of private brokerage at Stribling and the author of the report. “Prices have increased, some by as much as 28 percent since last August.”

Ken Malian, senior vice president and sales director of Douglas Elliman s Tribeca office, said he is seeing properties that were once overpriced get snatched up at all price points, including those in the luxury market.

“Things that have been on the market a long time are selling,” he said. “We had a property that was in the low $6 million range and it a took a price reduction, and then we got four offers.”

Malian had a similar story about an exclusive priced at $2.5 million for four months, which recently sold for $3 million. “Six months ago these properties were priced at a point where the broker said they wouldn t fly, but now the market is catching up to them,” he said.

While the higher prices are a definite positive, Mailian said he is spending a lot of time these days dealing with the inventory situation. “It s frustrating a lot of buyers,” he said, “and I m doing a lot of talking to brokers about preparing buyers expectations and I m spending a lot of time on the phone with buyers.”

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“Buyers need to know that there will be multiple offers, and even if you have an accepted offer, it may not go through,” Malian said. “You ve got to have everything ready. And when your agent calls you, run.”

In the current market, Mailian said downsizing is a little easier than upgrading, though still no cakewalk. “Downsizing is a little easier, but still, it s not so easy,” he said.

One seller Malian s company dealt with had a three-bedroom apartment in Chelsea that sold for $2.2 million – which actually represented a $1 million appreciation in the two years since purchasing it – and was looking to downsize. “They wanted to take that money off the table and buy something in the $1.6 million range, but there aren t a lot of those, either,” Malian said.

Brokers, of course, are actively seeking inventory that is not yet on the market. “At the high end, that mostly involves word of mouth,” Korte said.

The low inventory situation nationally, which is affecting most major metro areas, is also leading agents to urge buyers to pen personal letters to sellers, eliminate appraisal or inspection contingencies, and agree to escalation clauses, according to a recent story in the Wall Street Journal.

When and whether the inventory situation in New York will change remains to be seen.

“With prices where they are, there have been a lot of people considering that now might be the right time to sell,” said Korte. “There has been a little pickup in sellers that have been questioning that.”

Miller said the inventory shortage looks to continue in the short-term future, given the balance of supply and demand.

“If you look at demand, the economy is limping along, and there s not a lot of job creation,” he said. “You have very low rates, and you continue to stimulate demand.”

“On the supply side, there is limited conversion activity,” Miller said.

“The lead time on a project is 18 months to 2 years, so I don t see supply changing in the short-term.”

With the arrival of spring – traditionally the most active season for buyers and sellers – that could change. But there will likely be more sellers – and more buyers.

“Part of the issue is that no one wants to sell without buying first,” which further drives down supply, according to Miller.

Miller himself is currently shopping for a home in Connecticut.

“I m trying to buy a house right now and there s no way I m going to sell without buying first,” he said.