When will the real estate bubble burst?

News of a bursting bubble and increasing foreclosure rates is daily fare in reports of the American real estate market - unless it's New York City's market that's being discussed. Then the picture seems oddly stable; some would even say sunny for the foreseeable future.

The average sale price for a home in the city climbed to $782,000 in the third quarter of 2007, an increase of 20 percent from the same period in 2006, according to figures released yesterday by the Real Estate Board of New York.

"New York City is still considered a cool place to be, and everybody wants a part of it," said Richard Grossman, executive director of downtown sales for Halstead Property. "I have friends from all over country trying to move here."

"Unless banks stops lending we [the local real estate market] is not going to fall," he said.

Grossman pointed out a number of factors contributing to the city's seeming immunity from the national real estate crisis.

Foremost, he said, is that the city does not have a high proportion of the subprime loans blamed for many recent foreclosures. Co-op apartment buildings tend not to accept them, and in general New Yorkers make more money than the typical subprime borrower.

A weak dollar is also keeping the local market strong by attracting foreign investors in city real estate, Grossman said. Then, there is the age-old factor of supply and demand.

"Even with all the construction going on, you just can't build housing fast enough in this city," he said.

Yesterday's report found prices were highest in Manhattan, where the average home sold for $1.33 million, or around $1,176 per square foot. The average cost of a home went up in every borough except Staten Island, which saw a 2.8 percent drop.

The board's findings is based on data collected by the city and includes all condominimums, co-ops and one- to three-family homes sold in July, August and September. Despite the glowing data, some cautioned against being too optimistic about the market's apparent strength.

Gregory Heym, chief economist with Halstead, pointed out that there is the forecast of a downturn on Wall Street.

"Obviously, we don't know what is going to happen with the Wall Street bonuses," he said. "That is very important not just to real estate but to the whole economy of the city. If Wall Street starts to lay off large groups of workers, the market could turn."

The Associated Press contributed to this story.

Citywide
2007: $782,000
2006: $652,000
Percent change: +20

Manhattan
2007: $1.331 million
2006: $1.139 million

Percent change: +17

Brooklyn
2007: $621,000 2006: $575,000
Percent change: +8

Queens
2007: $503,000
2006: $475,000
Percent change: +6

Bronx
2007: $440,000
2006: $414,000
Percent change: +6

Staten Island
2006: $463,000
2007: $450,000
Percent change: +3

Source: The Real Estate Board of NY, Inc.

Q&A with Michael Slattery, senior vice president of research for the Real Estate Board of New York

Bottom line ...how and when might New York City finally cool off?

I don't think there's a time--to the extent that we continue to have job growth, population growth, I think we are a city that's going to continue to see real estate growth.

What about the possibility that the cut in Wall Street bonuses, economic slowdown next year could create a downturn?

The bonuses they may be less but they're still going to be there. Those are going to fuel activity.

Should people in the market jump in, or wait until next year?

Given the trend and what the expected increases are I think you need to move quickly, and I think you need to jump in.

What neighborhoods are most vulnerable to a downturn?

I think the neighborhoods that are always the most vulnerable to a significant economic downtown are those that are up-and-coming. Those don't have the sustained history of housing activity. Even if there's a dip in the market, the decent neighborhoods that have been here a long time are going to come back.

How is this market different from the last time real estate soared, in the late 1980s?

The city is certainly in much better shape than it was in the mid 80s. The quality of life is better, the streets are safer and our schools are better. Although we did see a good housing market (in the 80s), the fundamentals weren't as solid as they are today.

Is it really worth living in the city anymore? Are you kidding? We've projected a population of 9 million people. We have a million people that can't wait to get here. Of course (it's worth it). It's the quality of life, it's the excitement, its the assets here -- the theater, the sports. This is a place to be.

Source: http://www.amny.com/am-realestate-1108,0,5851850.story?page=1&coll=nyc-ent-topheadlines-left