2006 mid-year residential market update.

New York City in the first half of 2006 has seen a stable active market with little real price growth over the last quarter of 2005. Supported by a strong national economy and local job growth fueled by a busy Wall Street, and controlled by rising interest rates and buyer caution regarding overpricing, this market has rewarded the careful buyer and the sensible seller. Well-priced properties have sold briskly, many in overbids, as have both the highest end new construction in the luxury areas and those projects whose less traditional locations have been offset by reasonable pricing. Overpriced properties on the market in every part of the city have languished, causing sellers to lower these prices to more reasonable levels in order to become competitive. This phenomenon has been misinterpreted in some reports, that tout it as an indication of a weakening market. It is not.

Certainly the market is much different from that of late 2004 and early 2005. We do not have runaway price increases. Every property, no matter its quality or provenance, does not attract several bidders who feel they must offer the asking price to even get into the game. As sellers continue to ask overly ambitious prices for their properties, they linger longer in the marketplace. Inventories rise. Thousands of new condominiums move into the marketplace, boosting the stock of available properties still more. Reports are no longer about the bubble bursting, but about gradual deflation, making buyers already fearful about making a mistake even more anxious.

Actually, today's residential market is filled with buyer opportunities. In the one-bedroom and small two-bedroom markets, ambitious sellers have priced many properties beyond their value. As a result there are many choices for the buyer, who can leverage one property against another to make sure they get the best possible price. Buyers, who in recent years have been reluctant to make offers because they felt anything below the full price would fail to interest the seller, should now be prepared to negotiate. If a property has lingered on the market, it is frequently possible to offer 10% to 15% below the asking price and get a seller response. As rents have stabilized and increased, and landlords have become less flexible about giveaways, buying is once again a better and more intelligent financial option for many consumers eager to both build equity and get a stakehold in the New York market.

The family apartment market has expanded to every corner of the city. Conversions in northern Manhattan, new condominiums and conversions in Harlem, high rises appearing along the Broadway corridor between 90th and 106th Streets on the Upper West Sides, and cranes on every corner in Midtown both East and West, in the East Village and on the lower East Side, in TriBeCa, in Williamsburg and Greenpoint in Brooklyn, are all adding inventory to the options available for this demographic group. Families are being courted everywhere. While the prices of the traditional pre-war five, six, seven and eight room co-ops on the Upper East and West Sides have held firm and even risen slightly, there are opportunities at a wide range of different prices in the neighborhoods mentioned above, as well as Brooklyn's exquisite brownstone areas, Long Island City, and for the adventurous SoBro, the newly rechristened South Bronx. And each, with its new and renovated housing stock, pocket parks and gradually increasing influx of services, is attracting its own enthusiasts.

The luxury end of the residential market has never been more active. Here there is never quite enough inventory along the fabled avenues and streets of the city's most elite neighborhoods. Wall Street executives, hedge fund pioneers, and the wealthy from South America, Europe, Russia, Korea, China, and around the world wait anxiously for a new alternative and then rush to see it, once again bidding against one another to secure their piece of the top of the rock. The very large co-ops and condos in the most desired buildings are quickly bought up for prices at $4000 per square foot and higher, while the ultra luxury townhouse market is depleted. For these properties 2006 has been a record breaking year.

For the consumer the current market is difficult to penetrate. The reports cite stable or slightly increased prices but uses increased inventories and slowing rates of increase to predict a downturn. The national economy is strong, but the Federal Reserve fears inflation and interest rates have mounted steadily for a year and a half.

We recommend sticking to fundamentals. Do not buy if your goal is to double your money in twelve to eighteen months. New York real estate is a great investment, but it is best to have a time horizon of at least three to five years. There are a range of options, from introductory units to the most luxurious, in almost every neighborhood. Do your homework, both on line and through your broker, to determine which area and property type best suits your needs. Buy and sell in the same market. In our experience, those who try to sell at the top and buy at the bottom only outwit themselves 99% of the time. And don't think of your home primarily as an investment. This is the world's greatest city, with an extraordinary diversity of neighborhoods, of ethnic groups, of arts and culture, of restaurants, schools, and experiences. More than anything else, your home in New York is your passport to the richness of life in this amazing place.

BY FREDERICK W. PETERS

PRESIDENT

WARBURG REALTY PARTNERSHIP