Whatever goes up is supposed to come down, but when it comes to the New York City real estate market, the laws of gravity may not necessarily apply. Experts say the industry that enjoyed good times in 2004 will continue to be healthy throughout 2005.

"The market has been strong for the past few years," says Joanne Kennedy, chief operating officer for Manhattan-based brokerage Coldwell Banker Hunt Kennedy. "There have been dips and some slow quarters over the year - including the last quarter of last year, when things slowed down. The second half of the year was not nearly as robust as the first half of the year."

According to data compiled by Yale Robbins, Inc. and published in the company's monthly Condo Sales Report, prices throughout 2004 were every bit as impressive as 2003's numbers. Between January and November, 645 studio apartments, 1,531 one-bedrooms, 1,070 two-bedrooms, and 456 apartments were sold with three or more bedrooms, for a total of 5,638 units sold. The average price per square-foot for these properties also rose, edging toward $1,000. By comparison, in the same time period in 2003, 1,520 one-bedrooms were sold, 1,023 two-bedrooms found new owners, and 406 three-plus bedroom properties were taken off the market for a total of 4,278 units sold.

While many in the industry have spoken about the easing of pressure to buy, sell, and even flip during the middle quarters of 2004, the bottom line is that the Manhattan market still remains hot, according to Gregory Heim, chief economist for Brown Harris Stevens.

In his Fourth Quarter 2004 report for Brown Harris Stevens, Heim says, "The average price for an apartment in Manhattan has now spent three quarters over the $1 million mark, with the fourth quarter coming in at $1,052,155. The price is 30 percent higher than a year ago, and three percent higher than the previous quarter. For the second consecutive quarter, the median price posted a higher 12-month increase than the average price. At $675,000, the fourth quarter's median prices was 38 percent higher than a year ago, and four percent higher than the prior three months. This provides further evidence of the overall strength of all sectors of the market as the median price reduces the impact of sales at the extreme high end of the market."

According to Jonathan Miller, president and chief executive officer of Miller Samuel, Inc., a Manhattan-based real estate appraisal and consulting firm, that average-versus-median consideration is important.

"One thing to remember when talking about the whole one-million-dollars-for-a-one-bedroom benchmark is that it's somewhat of a misnomer," says Miller. "While it is an accurate figure, we also look at the median sale price for the overall market - which is just over $600,000. If the issue is affordability, it's important to remember that well more than half the units that sell are under $1 million. That's not to say that a $900,000 apartment is "˜affordable' to someone who can only spend $250,000, but one should keep that in mind, just for the sake of perspective."

Despite the strong start and even stronger finish, the relatively slow market in the middle of 2004 might have had to do with expectations that prices would come down. When they didn't, buyers jumped at opportunities they could afford. At the same time, interest rates remained in the low single digits, prompting people to buy.

"I'm seeing a pattern here, and that is that the first half of the year is really strong, and then the market takes a little breather," Kennedy says. "People think, "˜Maybe these prices will come down,' and they don't. And because they sat on the sidelines a little bit just means they have to pay more money now that they're getting in the game."

It's also no coincidence that the build-up to the November 2004 presidential election coincided with a brief leveling off of sales. Kirk Henckels, director of Stribling Private Brokerage, a firm that deals largely in high-end properties, says anxiousness over the fall election could have contributed to the slow stretch in 2004, though the effect didn't last long.

"I think we sort of peaked last spring and the market leveled off, particularly going into the elections," Henckels says. "After the elections it really picked up again - particularly at the high end."

Overall, the "high end" had another stellar year, according to Stribling's 2004 Luxury Market Report. According to the report, "The first half of 2004 was truly remarkable in its breadth and depth as buyers rushed to beat the anticipated increases in interest rates, but more importantly to secure a residence before prices went up further. The result was a seriously overheated market, with bidding wars and all the unattractive elements that accompany a hyper-competitive situation."

Then, echoing Henckel's summation of activity toward the middle of the year, things leveled off a bit, according to the report. "At the end of April, the market ceased to surge. Not that it declined, but the frenzy did seem to abate and brokers spoke of a new quietness. It had all the markings of a market in transition."

And again, the elections in the fall may have played a role.

"I think as contentious as these elections were, people just wanted the specter of this looming decision to be over with so they could get on with their lives," says Henckels. "I think in this case we had an economy heading in the right direction, [and once people saw that] taxes were not going to soar - at least not immediately - so people started spending."

And "spending," as it's defined in the luxury market, means shelling out $10 million or more for an apartment or townhouse. According to The Stribling Report, "The bull market, which has lasted since January of 2002, gained momentum yet again and with a new twist. Activity burgeoned, especially at the very top of the market, or over $10 million. In the first half of 2004, there were 13 cooperatives and 5 townhouses sold over $10 million. In the second half of 2004, there were 11 cooperatives and 11 townhouses sold in this category. Especially indicative of the momentum is that, as we enter 2005, there are already 16 cooperatives and 7 townhouses in contract over $10 million. This is evidence of the surging momentum we all witnessed at the close of 2004."

Some of the reasons for the strong market and continued robust outlook are unchanged from the past few years, and are unlikely to change in the future: Manhattan is an island with finite space. New York as a city has everything people want - nightlife, restaurants, sports, museums, theatre, business and jobs.

But there are unique factors that are making the market particularly strong, from a desire to buy while interest rates remain low - and people don't see prices going down - to the fact that people also may have more money now than they did a few years ago.

"Manhattan is finite, and it's pretty much built out to its capacity with the exception of a few areas," says Scott Durkin, chief operating officer of the Corcoran Group. "There's a lot of money out there, and when people got out of stock market, they held onto a lot of cash for a long time. And bonuses have been coming back from Wall Street the past two years, so we see that people are poised to buy whatever they want and price isn't an issue."

And even when price is something of an issue, the still historically low interest rates are inspiring plenty of non-millionaires to take on debt and invest in better-than-blue-chip New York City real estate.

According to Miller, people are less afraid of accruing debt, given the lower interest rates. "It's two-income buyers who are making that investment," he says, "and it's all relative; we had conversations about this in 1979 when a co-op on Fifth Avenue went for $150,000 and you could buy a one-bedroom for $25,000. People thought those buyers were out of their minds to pay so much. The key is what happens with mortgage rates over the next year or two."

It's impossible to discuss the New York real estate market without talking about the influence Wall Street has on the game. A lot of people think the tech-bubble stock market collapse a few years back had a positive impact on real estate. After either losing their retirement nest eggs when the market fell or reading about people who did, many people started to consider real estate as an attractive option; a safe place to invest their money.

"I think real estate has always been hot, but now it's like the new stock market," says Dottie Herman, the chief executive officer of Prudential Douglas Elliman. "When the stock market fell, people lost a lot of money. Now people are looking at real estate and realizing that [the market] may have its ups and downs, and might even slump, but you're not going to wake up some morning and find that your co-op or condo is worthless."

Herman adds that the ability to sell a house faster than ever has also led people viewing real estate as an almost liquid investment.

"One of residential real estate's biggest detriments was that it wasn't liquid," she says. "Let's say you bought your home for $300,000 and now it's worth $500,000. Well, that's great - if you can sell it. But God forbid you lose your job or get sick; with stocks, even if you were to take a loss, you could call your stockbroker and get your money the next day. With real estate, after you call your broker, it could be three or four months by the time they put it on the market, and somebody finally gets a mortgage and buys it, so you couldn't say it was a liquid investment. Today, with all the financial vehicles like equity loans, that money becomes more liquid."

Will rates ever go up? Will prices ever come down? The slowing down of the market a bit in 2004 may, in part, may have been spurred by potential buyers deciding to wait for prices and/or interest rates to come down before pulling the trigger on a purchase. Neither of those things happened, and while prices may have leveled off a bit, bargains haven't showed up on the market.

"We've been saying this for years," says Coldwell realtor Deborah Gimelson of the expectations that eventually there has to be a slowdown. "And perhaps there's an argument to be made that the prices should and could come down, but we don't see that happening tomorrow."

There's also an expectation that interest rates will start to climb, and even though they've increased a bit from where they were a few years ago (Durkin calls that period "˜the year to refinance') they're still very good.

"For us, the largest effect on the market would be an interest-rate hike - and I think that's what most of the buyers are concerned with right now," says Durkin. "Are interest rates going to inch higher? We're finding that is on people's minds, and therefore our market is very healthy right now."

"The low rates and some of the psychological effects of the post-9/11 economic slump have led people to see real estate as a good investment, a better place to put their money after being burned in high-tech stocks," says Henckels. "The low interest rates make real estate very attractive as well. If you suddenly have a stock market doing a whole lot better and a higher interest rate, that's going to pull money out of the real estate market."

But even if rates do start to climb, no one expects them to jump too high too quickly. If they start climbing, people could start buying because they'll still be reasonable. "They're not going to let interest rates jump," adds Herman. "If they increase, they'll creep up. And if you compare them to the last 20 years, they're still very low. I don't see them going up enough this year to make much of an impact."

Since there are a lot more co-ops than condos in the city, more apartments in those buildings get sold in any given year. But condos are becoming more and more attractive to buyers because of the fact that they are owned outright and because there are fewer restrictions of the type that come with a co-op board.

"Everything sells," says Kennedy. "But I think among the buying public, a lot of people are turned off to co-ops and co-op boards - but that's the area where they want to live. A lot of New Yorkers want a premier building in a residential neighborhood, and those primarily tend to be co-ops." And while there are many more co-ops than condos in the city, Kennedy says, "All new constructions are condos."

Herman agrees. "I think condos have become a very strong part of the market, not only because a lot of the new projects are condominiums but because it's a purer form of ownership and there are fewer restrictions," she says. "There are people who swear by co-ops, but I think you're seeing a lot of strength in the condominium market because it's less limiting. And I think younger people are definitely interested in [buying] condos if they can."

Durkin says far more co-ops sell than condos but that a good number of condominiums have come into the market recently - and they weren't available for long. "We had two or three developments that sold out on their first day in a matter of hours," he says. "Anything that is new and is a condo is selling at a feverish pace."

When it comes to amenities and features, the trends are for bigger living spaces and modern kitchens. "Amenities speak volumes," says Durkin. "Everyone wants a commercial-grade kitchen the best Viking or Wolf appliance. The high-end dishwashers, the bread warmers."

"Living space is important, and so is storage space and closets," says Herman. "Maybe people didn't have a lot of clothes back then, but a lot of older apartments don't have [sufficient] closet space."

"People love high-end finishes," continues Durkin. "They love their newly-purchased spaces to be renovated and ready. With property changing hands so many times over a few years, the really hot sellers are apartments that don't need any work."

And some things are expected. While just about anyone living in the city has always wanted a doorman and security system, a lot of people are more aware of security in the building and how it works.

"If you look at all the new developments in Tribeca, when it was first developing, none of those buildings had a doorman or anything like that," says Gimelson. "Now all the new buildings there have a doorman and concierge and a live-in super."

And, says Herman, anyone building a new project better have an exercise room. "I tell developers, "˜Don't you dare build a building that doesn't have a gym in it!'" she says.

Opportunities to jump into an area that is affordable now and growing are becoming virtually non-existent. Developers are still building new buildings throughout the city, but getting in early doesn't mean getting in cheap.

"You used to be able to go across the river and go to Brooklyn for a deal," says Durkin. "Now Brooklyn Heights, Carroll Gardens, Fort Greene, Park Slope, they're just as expensive as the Upper East Side or down in the East Village." Durkin also sees the West 42nd Street corridor as a hot new area.

"It's a developer's dream, because most of it is an empty canvas. We're about to do a 550-unit condominium [The Orion] that's going to be spectacular," Durkin says. He also said that the Financial District, Long Island City, and Red Hook and Crown Heights in Brooklyn are growing areas.

Miller notes that one area which has seen more than a 300 percent increase in sale prices in the last decade is the area of Manhattan above 116th Street. Miller's report, which analyzes sales over the past 10 years, finds prices jumped an astronomical 349.3 percent from the $68,000 apartments sold for in 1995.

"People are looking for alternatives," says Miller. "From an affordability standpoint, it's simple economics"“the buyers who are priced out of areas they'd normally consider first are looking to alternative areas. The area above Central Park is an established residential neighborhood with support services and all the things that people are looking for. Between Inwood and Fort George, the activity is predominately gut rehabs and new construction, so you're seeing a lot of condos coming online in Harlem, East Harlem, and Morningside Heights."

"I also think we're going to see the area downtown around the World Trade Center become more of a 24-hour neighborhood in the next five to 10 years," Miller continues, "once the World Trade site is underway and more residential support services come into the area. We've already seen several conversions of Class C [office] space into residential, and it's been very well accepted. We're also seeing interest in turning hotel properties [like the Plaza] into condos. Tourism and room occupancy are both relatively high, but hotel operators are considering conversion to condos an alternative to get a higher return on their investment."

"I keep looking at the Upper West corridor," says Kennedy. "I think there's no doubt that parts of Queens and the Bronx are going to catch on. There's a lot of speculation going on in the Bronx."

And that's what it comes down to: speculation. People can want all sorts of things, but the reality is that with opportunities being what they are, the industry is in the midst of a strong seller's market and that doesn't appear to be changing in the immediate future.

"As long as the economy holds up and interest rates just bump up a little," says Henckels, "I think we're going to have a strong, maybe slightly increasing market in 2005."