For a little over a year now, the strength of the New York City real estate market has been a stark contrast to the national market.  As things worsened across the country, the news was either great or just OK in New York City.

As the market finally started to show signs of its mortality towards the end of 2007, the overall numbers were still fairly positive.  The luxury housing market was propping the rest of the city’s market up.  Most luxury markets are typically well-removed from the business cycle, so it came to an as little surprise that, even in the wake of the financial market’s problems, the luxury apartment market held up well against the national downturn.

What was a surprise, however, was just how strongly the market performed.  Several new buildings full of luxury New York apartments opened, and average prices for the luxury market continued to climb.

As the economy sinks further into a recession, and as the news of Bear Stern’s demise spreads, worries are beginning to mount over just how long the luxury New York apartment market can keep it up.

Market activity, by most accounts, has slowed over the past quarter or so, though prices have not dropped.  Pricing in housing markets often follows changes in the volume of activity, even in the luxury market.

Weighed against this change, however, is the weak dollar, which has dramatically increased foreign demand for luxury New York apartments.  Also, the strong end-of-the-year bonus season will continue to bolster the spending plans of wealthy families in the city throughout much of the year.

With supply and demand both in relatively strong places, it is difficult to see a severe drop off in prices in the luxury market.  For instance, the credit crunch, for example, has led many banks to tighten their lending standards, according to a recent study by the Federal Reserve.  However, few, if any, of those looking to purchase luxury New York apartments, do not have sufficient credit or collateral to secure a loan.

That’s not to say interest rates will not increase, even in the wake of the Fed’s sharp interest rate cuts.  But it is unlikely that an increase in rates will dramatically harm demand for housing among the wealthiest members of the world’s most vibrant city.

The bottom line:  If other major Wall Street firms share bear Sterns’ fate, then prices will begin to fall significantly in the luxury New York apartment market.  However, if such total calamity can be avoided, then the market should continue to perform strongly.

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