RISMEDIA, Oct. 5, 2005—(KRT)—Small studio apartments were hot this summer in Manhattan, while the luxury market cooled—sending the average sale price of all apartments down.

For the three months ending in September, Manhattan apartments sold for an average of $1.15 million -- a drop of 12.7 percent from the $1.32 million record set during the previous quarter, appraiser Miller Samuel announced.

Don't panic, recent home buyers. The city's real estate boom is not over, said the firm's CEO Jonathan Miller, who wrote the quarterly Prudential Douglas Elliman Manhattan Market Overview.

"The boom is continuing -- just not at the torrid pace of the first half of 2005," Miller told the Daily News. "This is a return to more normal behavior for a healthy real estate market."

One indication the market's still strong was the average price per square foot -- which set a new high and edged closer to $1,000 per square foot. It has risen quarter after quarter with one exception for the past three and a half years, Miller said.

Buyer psychology played a part in slowing third-quarter sales, he said.

People watched Hurricanes Katrina and Rita hit the Gulf of Mexico, and worried about rising gas prices and other threats to the economy. Soon-to-retire Fed guru Alan Greenspan scared them by predicting the real estate bubble could burst.

"This made some buyers hesitate; there were people on the sidelines waiting to see what would happen," Miller said.

The buyers who were most likely to get off the sidelines were renters who wanted to get into home ownership by purchasing small apartments. Fearing that mortgage rates could rise, they figured they'd better buy -- and lock in mortgage rates while they were still low.
As a result, entry-level Manhattan apartments hit all-time price records. For instance, condo studios rose 18 percent from the second quarter, to an average $531,739 -- and 34 percent from their year-ago price.

One-bedroom condos gained 10 percent in price in a single quarter, to an average $794,039. That was 21 percent more than their average a year ago.

At the other end of the scale, the luxury sector was slow -- more because of a short supply of really expensive apartments for sale than a lack of demand for them.

"It's not that the rich have become frugal," Miller said.

The average luxury apartment price -- for the top 10 percent of the market -- was $3.82 million. That's down 26 percent from the second-quarter average of $5.17 million.

Just four apartments priced at $10 million or higher changed hands during the third quarter. There was no way the luxury sector could match its second-quarter performance -- which was exceptional thanks to 17 sales of $10 million or higher, and one-of-a-kind trophy transactions like media mogul Rupert Murdoch's $44 million penthouse purchase at 834 Fifth Ave., Miller said.

Looking ahead, Prudential Douglas Elliman CEO Dottie Herman predicts solid price increases for the year as a whole -- but expects the pace to slow from last year.

"The market can't go up 30 percent every year -- that's impossible," Herman said.

"Last year, we had no inventory -- you would lose an apartment if you didn't bid over the asking price," Herman explained. "This year, there are more choices."

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