City still a bargain.

After a decade of steadily rising prices, the overall value of New York City real estate rose 14 percent last year, according to the New York City Department of Finance. In many cases in Manhattan, price increases were significantly more dramatic. The average sale price for a Manhattan apartment was $1,074,720 in November 2004, an increase of 56 percent from November 2003.

The implication for sellers is clear, but what are buyers and investors to make of the seemingly endless upward march of prices? Is the housing market as vulnerable as the dot-com-fueled stock market was five years ago? Will rising interest rates collapse the entire market?

While no one can read the future, it is important to highlight the factors that distinguish the New York City residential sales market. To begin, New York City is one of the world's great cultural and financial centers, and, as such, it continues to appeal to people from all over the world.

Overseas investors have purchased apartments in Manhattan for use or investment for many decades, but the weak dollar has attracted an influx of bargain hunters. It may sound odd to describe someone purchasing a million-plus-dollar apartment as a bargain hunter, but for foreign buyers, Manhattan is on sale. The dollar has dropped dramatically in value, cutting prices by 25 to 50 percent for international buyers, who compare New York City to Tokyo, London and Paris. International buyers now have an incredible opportunity to buy property in Manhattan at a value.

Meanwhile, local demand continues. Local buyers have been buoyed by a steadily recovering economy, increased jobs, and a pop on Wall Street. New Yorkers and those moving here have seen the benefits of home ownership and they are optimistic about investing in the city's future.

Interest rates, at least for the near term, remain historically low and despite an increase in inventory in the fourth quarter of 2004 from the fourth quarter of 2003, supply still cannot match demand. Developers continue to build and convert luxury condominiums, but it does not appear that upward pressure on prices will subside in 2005. In fact, as buyers today anticipate a slight increase in interest rates, many are eager to lock in currently low rates. This is expected to drive up prices approximately 20 percent in the first quarter of 2005.

Options for buyers and developers are increasing, adding momentum to the expansion of the Manhattan residential experience. Many nontraditional areas are now becoming havens for families, offering all the amenities of more built-up neighborhoods, led by new condominiums that become anchors in the area. As the trend continues, Manhattan will start to become a more integrated residential center of distinct neighborhoods rather than isolated residential pockets throughout the city.

Short-term dips are always possible, but New York City residential real estate remains an excellent investment vehicle in the long-term, an investment that provides a living space in addition to potential growth in equity. As the city continues to witness extraordinary new development such as the World Trade Center and the West Side Stadium, it appears that momentum may continue for some time.

LOUISE PHILLIPS FORBES

SENIOR VICE PRESIDENT

HALSTEAD PROPERTY, LLC