The last couple of years have been tempestuous for everyone involved in the real estate industry, and the New York market is certainly no exception. But the city’s residential real estate is extraordinary in that during the current recession it has held its value or rebounded more quickly than residential properties in the rest of the country. Even so, 2010 has been a wild year for real estate in the city, and industry experts say that what will happen in the coming year depends upon many political, economic and financial factors.

The stability of the economy and the stock market, or whether the government will offer new incentives for home-buyers are two of the many factors that could influence the markets for co-op and condos in the coming year. Possible changes in political leadership resulting in heavier taxes on real estate sales also could hurt the market. What will happen in the markets in 2011, real estate pros say, is going to be a result of these factors and most importantly, consumer confidence.

Markets Stabilizing

Despite suggestions from some quarters that the economy is in recovery mode, fears remain that we may yet experience a so-called “double-dip” recession. Even so, many New York City real estate industry pros seem confident that the worst has passed. Apartment pricing in the city has stabilized (though down to levels of two or three years ago in some neighborhoods), ending a downward slide in many areas, and prices in some parts of Manhattan seem to be on the upswing again.

Residential sales volume has gone up in the city a little in the past year, says Al Pennisi, an attorney and partner with Queens-based law firm Pennisi Daniels & Norelli and the president of the Federation of New York Housing Cooperatives & Condominiums (FNYHC). Part of that change is due to more money in the pipeline. “The banks have gotten less strict [on requirements for home loans],” he says.

Pennisi adds that the stronger economy has also helped the confidence of potential buyers and sellers alike, though not all of them are faring equally well in this economy.

Smaller brokerages are struggling, though the larger ones are doing better, says John Reinhardt, president/CEO of Filmore Real Estate. “Our sales are up 18 percent this year. A firm that’s our size is in a good position to grow,” he says. Filmore Real Estate has 18 offices and 500 agents, making it large enough to absorb some of the nuances of the market, Reinhardt says, adding that business in the affordable housing market—which in New York City is housing priced in the $150,000 to $300,000 range —is great. Conversely, $1 million+ homes in the city now are sitting on the market longer.

Most pros agree that smart pricing will have more of an impact on sales than in past boom years, but there is still good news on the horizon and right now, according to Corcoran Group CEO Pamela Liebman. Prices are up across all categories, she says, and third quarter Manhattan median sales prices rose 15 percent over second quarter 2010 and 9 percent above a year ago. Co-op median sales price rose to a record high of $760,000, up 24 percent versus a year ago and 22 percent versus second quarter 2010 as $1 million+ sales surged this quarter.

“The third quarter market can be described as the ‘new normal,'” says Liebman. “Sales hewed to the more typical, normal seasonal selling cycles of the past: a busy spring followed by reduced summer sales activity.”

Insurance, Fuel Costs, Real Estate Taxes Climb

You don't have to look far to see prices increasing everywhere. The city's co-ops and condos are no exception. Richard Apell, controller of Argo Real Estate, which manages nearly 100 buildings in Manhattan, Queens and the Bronx, sees future costs climbing as buildings go about preparing their new budgets. "In preparation of 2011 budgets, we need to look at those items that potentially have increases, that we are projecting based on certain information. Sometimes we know ahead of time what the increases will be or are projected to be."

The focus is on items that are not necessarily repair-related, he says. Things like a building's underlying mortgage, real estate taxes, insurance premiums are important. "There's maybe a category of like three or four that are impacting 70 percent of every building's budget: real estate taxes, their mortgage, their insurance and their heating costs," says Apell. Buildings also have a large payroll but those costs are more or less fixed and subject to union costs and other increases, he explains.

As controller at Argo, "I get involved with everything we can do to minimize those costs." For example, he says, Argo buildings pool their insurance to get a volume discount and generate lower rates. So as a consequence, he says, management has been able to reduce premiums on some of the coverages. Managers also look for savings through heating, gas and fuel oil costs. If you have oil, you most likely will see prices rise, he adds. As far as water usage, Apell said the rate was around 12.9 percent in 2010 but he is projecting an increase to 15 percent in 2011 across the board. On gas, there should be a savings realized. On oil, it might go up somewhere between 10 or 15 percent, he estimates. In New York City, taxes for Class 2 residential multifamily: (rental, condo or co-op) were to have increased from 13.241 percent to 13.353 percent in July. However, on January 1st the new rate is scheduled to be 13.465 percent, according to Apell. In general, he advises buildings to look at their operating costs and find savings where they can. Look for alternate suppliers and challenge your real estate taxes annually as a way to lower your operating expenses, he suggests.

Brighter Horizon?

People are buying homes for the usual reasons of wanting to trade up, because they need more space, or because they are moving into the market. “They are buying smart and for keeps,” Liebman says. “Purchasing a property to flip it for a quick profit is a thing of the past.”

During the third quarter, buyers felt that bigger was better, according to Corcoran’s most recent market report. In the third quarter 2010, larger residences of two and three-plus bedrooms increased in market share to 55 percent of sales, up from 50 percent of sales a year ago.

Much of that activity is happening in Manhattan, which continues to be home to the most sought-after residential properties in the city. For many buyers, Manhattan is the first pick, then it’s Brooklyn Heights and Williamsburg, says Kathy Braddock, founder of Charles Rutenberg Realty. “But for some, Brooklyn has become first choice,” she says. “Long Island City also is having a strong comeback.”

The neighborhoods that were hot prior to the start of the Recession are largely holding their own, even in the slumped economy. Bayside in Queens and Bedford-Stuyvesant in Brooklyn are two of those prime locales, as is Brooklyn's Fort Greene. Hotspots aside, sales are still fairly flat overall in Queens, Brooklyn and Nassau, says Pennisi.

Despite the wariness of some in the market, many pros feel the upcoming year could be a very busy one. Due partly to the lack of new inventory coming online in the city in 2011, a slight appreciation of property values will occur. For at least much of the year, the buyers’ market will continue, says Stephen G. Kliegerman, executive director of development marketing at Halstead Properties.

“It’s still the ideal time to buy, with low interest rates, a stable marketplace and lower prices… You’re going to start to see inflation in prices,” Kliegerman says. “Buyers are cautiously optimistic and looking to take advantage of low interest rates.”

That favorable market won’t continue forever and could be over before the end of 2011, some experts say. These days, people are moving cautiously, and are extremely wary of over-paying, Braddock says. “As long as things are priced properly, there are plenty of buyers and sellers out there. People are feeling OK.”

That change in attitude and improvement in the economy has had a measurable effect on the quality of life in some residential buildings. Lack of property sales made the management of some buildings more vigilant in collecting “flip” taxes, says Enid Hamelin of Lawrence Properties. In many places, that increased vigilance also has resulted in a changed attitude regarding management of a building’s bottom line.

“There is much more interest now in the economy of running a building,” Hamelin says. “We’re trying to economize on the amount of paper going out [of the management office], how much lights are being used and other things. That conservation is the result of the economy.”

Practicing thrift and reducing waste is a change all management companies have had to make because of the economy, Hamelin says. Of course, that change helps a resident’s bottom line as well, since reduced buildings costs lower the possibility of hiked maintenance fees.

Some co-ops actually are capitalizing on the economy by re-financing, enabling their management to keep maintenance fees down and also even build up capital reserve funds, Pennisi says.

Wishes Granted?

Real estate industry pros in New York City hope that nothing drastic happens that will affect the markets for co-ops and condos. A reduction in city services could be detrimental to the markets, some say.

“We hope that the city stays at the level it is now with the police and the firemen. Because we’re only as good as the environment we work in,” Hamelin says.

City and state legislators recently have begun to focus their attention on co-ops and condos, but not in the best way possible, Pennisi says. “There have been rumblings about increasing transfer taxes, but there’s no legislation yet, thankfully,” he says. Ordinarily, the seller pays New York City and New York State transfer taxes in connection with the sale of an apartment. For New York City, this tax amounts to 1 percent of the purchase price for apartments under $500,000 and 1.425 percent for apartments priced at $500,000 or more. The New York State transfer tax is .004 percent of the purchase price (which equals $4 per $1,000 of purchase price).

Experts also say that continued low interest rates would be helpful in spurring activity in the market. Other financial measures also could bear fruit. “I’d like to see the banks slightly ease up on qualification requirements,” Kliegerman says. “I would love to see the city come up with a plan for tax abatement for housing in the city.”

Pennisi also would like to see the NYSERDA loan program for co-ops related to green building improvements reinstituted. The state-sponsored program was suspended in December 2009 but it had provided funding for green improvements to homes, such as upgrades to heating and air conditioning systems.

Given the market indicators, and confidence on the part of many people, Pennisi is hopeful for better business in 2011 than the activity of 2010. “I’m optimistic that the market will go up a little,” he says.

Jonathan Barnes is a Pittsburgh freelance writer and a frequent contributor to The Cooperator.