NYC real estate: Pricey, headed for a fall

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NEW YORK (CNNMoney.com) -- The crisis on Wall Street hasn't hit the high cost of Manhattan real estate, but the economic slowdown has curbed the number of deals in the Big Apple, according to reports out Friday.

Sales figures from four major New York real estate agencies showed the average price for a Manhattan apartment rose in the third quarter over last year. At the same time, the number of apartments sold in the quarter declined sharply.

"The events of the second half of September in the financial markets and Washington have not shown up in the market data for the quarter, aside from the lower level of sales activity compared to last year's record levels," said Jonathan Miller, president of New York real estate firm Miller Samuel.

The average price of a Manhattan apartment ranged from $1.4 million to $1.48 million in the third quarter of 2008, according to separate reports released Friday by Brown Harris Stevens, the Corcoran Group, Halstead Property and Prudential Douglas Elliman. That represents an increase of anywhere between 8% and 12% over average apartment prices in the third quarter of 2007.

But the rise in third-quarter sale prices was skewed by a large number of deals in new luxury buildings, which went into contract as much as a year or two ago - before economic conditions deteriorated - but only closed recently, according to Corcoran Group CEO Pamela Liebman.

"The average sales price is going to trend down," Liebman said. After soaring to unprecedented heights in 2007, "we're going to get back to a more normal range," she added.

Already the number of properties sold during the quarter saw a steep decline from the record highs hit in the third quarter of last year.

Corcoran sold fewer than 3,000 properties last quarter, down 45% from the nearly 5,500 properties the agency sold in the third quarter of 2007.

At the same time, the number of properties on the market is increasing. Listing inventory rose 34% during the third quarter, according to Miller's research.

"Clearly, inventory is moving higher as sales activity has fallen," said Miller, who attributed the slowdown at least in part to the fact that mortgages have become more expensive and harder to get.

And economic turmoil in Europe has crimped the flow of overseas buyers to the city. Miller estimates that foreign buyers made up one-third of all purchases in new developments in New York last year.

While the labor market in New York has remained relatively stable, the fallout from the crisis on Wall Street, and the corresponding rise in unemployment in the financial sector, will probably further undermine the city's real estate market.

"We're going into an uncertain economic period with volume at low levels and a low likelihood of new development," Miller said.

Miller said the direction of the real estate market could hinge on Washington's proposed financial intervention, which is currently being debated in Congress, and on the outcome of this year's presidential election.

One of the main goals of the bailout plan is to free up the frozen credit markets, which have been a major drag on economic activity - particularly in the housing market.

"The question of housing is almost moot unless you get a handle on where credit is going," Miller said.