Seriously, this is out of control. http://www.nytimes.com/2004/04/15/n...400&partner=GOOGLE&pagewanted=print&position= Apartments Going Up, to an Average of $1 Million By MOTOKO RICH The average sales price for an apartment in most of Manhattan rose to $998,905 in the first three months of 2004, surpassing the previous record of $919,959, set in the third quarter of last year. At a time when economists and homebuyers have been wondering whether a housing bubble is on the verge of popping, the average sales price climbed to a record high, according to the Douglas Elliman Manhattan Market Overview, one of the most comprehensive surveys of the real estate market below 96th Street on the East Side and below 112th Street on the West Side. According to Miller Samuel, the appraisal firm that prepared the Elliman report, the median price - the exact middle of all apartment sales - in Manhattan during the first quarter was $625,000. But even that was a record, up 21 percent from the same period a year earlier. Figures from the Corcoran Group, one of the largest real estate brokers in Manhattan, showed that average prices breached the psychological barrier of $1 million in the first quarter of this year, rising 32 percent, to $1,001,000, from $760,000 in the same period last year. The high averages posted last quarter have all been skewed by high-priced sales as more people have bought bigger and more expensive apartments than at the same time last year. Many of the price increases were driven by bidding wars and buyers offering well over asking prices. According to Corcoran, the number of deals that closed over the asking price was 57 percent in the first quarter, up from just 23 percent in the same period last year. Dottie Herman, president of Prudential Douglas Elliman Real Estate, said the increase was simply a case of supply and demand. "There really is no supply," she said. Indeed, according to the firm's market overview, inventories of available apartments for sale continued to fall in the first quarter to 4,299 apartments, down 32 percent from 6,349 a year ago. In the fourth quarter of last year, prices dipped slightly, to $903,259. That was in comparison to a third-quarter figure that had been inflated by the record-setting $45 million sale of a penthouse at the Time Warner Center. The increase in prices in the first quarter of this year has delighted brokers, but also discouraged buyers. Ms. Herman said that the lack of available apartments had incited bidding wars, and that she believed the market was now even more frenzied than during the hot market of 1999 and 2000. Such numbers have meant sticker shock for a lot of buyers. Ann McIndoo, a 50-year-old speechwriter for authors who is trying to move to Manhattan from Orange County, California, thought that with $1 million, she would be able to find a spacious two-bedroom apartment here. But when she started seeing what her money could buy in Manhattan, she was stunned, and began raising her offering price from $1 million, gradually hitting $1.8 million. She also scaled back the list of demands she gave her broker: "When I first gave him my list, I said, 'I want two bedrooms, lots of light, closets, a window in the kitchen.' But when I started looking at things, I found that just isn't available here. Or you need three or four million to do it." Bill Billitzer, the Douglas Elliman broker who is working with Ms. McIndoo, said: "For people that have been in their homes for some time, $1.5 million is a lot of money. You can't just tell them 'no, you've got to increase your budget by 30 to 40 percent.' " He said he had several clients who had given up on buying for now and were renting instead. The crazy state of the market, though, makes some buyers wonder whether they will see a repeat of the late 1980's and early 1990's, when prices hit record highs and then plunged. With so much home buying driven by historically low mortgage rates, economists are watching for the impact of a probable rise in interest rates as early as this summer. "The biggest danger to the market is that rates will go up," said Karl E. Case, a professor of economics at Wellesley College and a partner in Fiserv CSW, a real estate research firm. Still, he said, most people regarded real estate as a better investment than stocks or bonds, a factor that would likely keep prices from collapsing altogether. Pamela Liebman, chief executive of the Corcoran Group, said rising interest rates would at first prompt even more people to enter the market. "When people start to see interest rates picking up, they're going to try even harder to get in before they go even higher," she said. "It's like a battle cry." Even if prices do come down, said Hall F. Willkie, president of Brown Harris Stevens, a real estate brokerage firm in Manhattan, housing will remain a good investment. "The only people in my entire career that I've ever seen lose money are those that by circumstance buy in a high market and then they are forced by circumstance to sell at a low," he said. "Barring that, if you look over time, even where there are dips in values, the value of real estate over time continues to go up." The bidding wars have become a particular problem, said Chuck Sage, a broker with Douglas Elliman, because buyers were having trouble securing mortgages when bankers appraised the apartments for less than the purchase price. "If somebody is buying something for several thousand dollars more than what the apartment is actually worth, then the buyer may not get the amount of money that you need to finance the apartment," Mr. Sage said. Despite such worrying trends, Jonathan Miller, president of Miller Samuel, said he did not believe the market was approaching the troubled waters of the early 1990's. The difference, he said, was that in the late 1980's, a boom in co-op conversions and condo development flooded the market with supply for which there was no demand. This time around, supply is in check and low interest rates are keeping demand high. That is not much comfort for the buyers who are struggling to find an apartment. Ms. McIndoo, the relocating speechwriter, said she would keep looking. But, she said, "I'll probably have to spend more money."