After an era of giddy figures–with the average price of an apartment in Manhattan closing in on $1 million–New York City’s residential real estate market has started to lose its sense of certainty. Any broker asked about the state of affairs in mid-2001 would’ve responded things are just fine, thanks. None denied the boom was over, but they would invariably maintain the almost fail-safe optimism that characterized Manhattan’s residential market following the astonishing trends of 1999 and 2000. However, while evidence of an outright panic following the World Trade Center attacks didn’t materialize at the time, recent reports confirm that the real estate market did indeed take a hit in the fourth quarter of 2001.

While statistics from the major brokerage firms in the city show that sales volume remains somewhat steady taken as a whole, overall, both apartment sales prices and average time on the market have declined. The luxury market–already showing signs of a fall-out six months ago–remains bleak, and the downtown real estate market–despite original reports of business-almost-as-usual–did indeed take a bashing following September 11th. One reason for optimism: a trend towards purchasing smaller apartments is emerging in the winter apartment-hunting season, which began around Thanksgiving. Normally the deadest time for co-op and condo sales, the market is bursting with what Insignia Douglas Elliman’s Manhattan Market Overview calls the "shift in the unit mix." Despite the declines, activity for sales of smaller units is on the rise.

The year 2000 was a time during which Manhattan residential real estate maintained its legendary numbers. Continuing in and even surpassing 1999’s regal footsteps, 2000 represented an astonishing renaissance for New York City, during which every neighborhood was marketable. According to The Corcoran Group’s Year-2000 analysis, the residential market was resilient to stock market fluctuations and incipient worries about the national economy. With phenomenal 21 to 23 percent increases in the average sales price indices over 1999’s record-high levels, the report cited that a hunger for the Gotham lifestyle led to a 30 percent decrease in buyer negotiability–down to a mere 2.6 percent off asking price. It was a seller’s market in the purest sense of the term. New construction condos continued to raise the ceiling–and floor–on all property values market-wide.

Feeding the record-breaking prices was the higher standard of luxury lavished on new apartments, often exceeding buyer expectations. In existing co-ops, whether pre- or post-war, the trend toward high-quality renovations contributed to the softening of whatever initial buyer resistance there might have been.

In 2000, the city was in the thrall of a booming economy, the effect of which was the wholesale transformation of where buyers were willing to live and how much they were willing to pay to live there. Gimmicks to market virtually every neighborhood actually worked; brokers homogenized Manhattan and permeated each area with Upper East Side values. Every neighborhood was made to sound like yet another new yuppie sanctuary. Agents made a concerted effort to market each area as its own hip location (with its own nifty new acronym). Southern Harlem became "SoHa" and the area above the Battery Tunnel became "NoBatt." Once known for animal carcasses and transvestite hookers, the meatpacking district was christened "MePa" and colonized by fabulous cafes and trendy lounges. And with each transformation, outfits like Starbucks followed suit. Brokers began calling second and third floors "townhouse" floors. Walk-ups were described as "charming."

Downtown posted the most spectacular gains citywide in every category of co-op sales during the boom. Year-end 2000 Corcoran statistics demonstrated that the average sales price soared 42 percent downtown, and average price-per-square-room swelled 29 percent to $107,000 for the year. A magnet for the young and hip, the culturally diverse area boasted the highest average sales price in Manhattan for co-op studios and one-bedrooms. Of the downtown neighborhoods, Greenwich Village was the priciest for two- or three-bedroom co-ops.

Downtown two- and three-bedroom condos beat out the breathtaking gains of both those on the East and West Sides, with two-bedrooms skyrocketing 42 percent to $712,000, and three-bedrooms 38 percent to almost $1.2 million. The West Village, with the development of Hudson River Park, emerged as the most expensive condo market downtown where one-bedrooms averaged $557,000, rivaling the Upper West Side’s prized Lincoln Center vicinity. Demand for downtown lofts devoured the spate of new conversions in TriBeCa, the Meatpacking District and Chelsea. Average sale prices topped $1 million for the first time, 11 percent higher than the 1999 average. Shooting up 20 percent to $523, average cost per-square-foot attained a range associated with traditional apartments on the Upper East Side. The greatest amount of sales activity occurred in Chelsea and the West Village, both beneficiaries of the new Manhattan order.

"It was this incredible, euphoric time, said Douglas Elliman’s broker Dolly Lenz–one of the most successful brokers of the boom–in March 2001. "Everybody had to have what their friends had," confided Lenz. "I’d literally make money picking up the phone." Manhattan brokerage firms grew larger, created new office divisions and, in some instances, merged.

The euphoria didn’t last long, however; apprehension set in following a dip in activity at the end of 2000, but brokers said things picked up again in February 2001, so that a year ago, brokers had a reason to remain hopeful. But still, expectations were sent askew. "People are scared," admitted Halstead Property Company’s broker Robin Horowitz at the time. She had a unit that went on the market five months earlier for which the seller was holding out. Come mid-2001, he was motivated to sell, and at a figure quite a bit lower than the original asking price.

Before anyone knew–or was willing to admit–the time of bidding wars and higher-than-asking prices was long gone by March 2001. Prices were going down, to the point where some brokers reluctantly agreed that an eight percent discount had taken effect. By all accounts, though, Lower Manhattan was not much impacted. According to Warren Wechsler, first senior vice president of the Real Estate Board of New York (REBNY), the city’s largest real estate trade association, "Conditions were relatively favorable… Office prices were steady. Housing prices were still increasing, though not as fast as a few months before."

Brokers, however, remained outwardly optimistic. As ubiquitous master-marketer Barbara Corcoran stated in the March 2001 issue of The Cooperator: "Despite last year’s nail-biting stock-market fluctuations… real estate has stood tall through it all… One thing’s certain: Owning New York City real estate is still the ultimate status symbol among ultra-status conscious New Yorkers. The past year may have been a roller-coaster ride for Wall Street, but our real estate clients have remained extremely calm and confident."

Indeed, real estate in any market is somewhat isolated from immediate repercussions of a bad economy. In Manhattan, there were not the multiple bidding wars of the previous year, but according to James Ferrari, chairman of Manhattan’s Benjamin James brokerage firm, "The market wasn’t going back," despite forecasts of a slowdown. According to Ferrari, the market remained "excellent…extremely tight and fast." The reason he says was the low interest rates that made it easy for someone with good credit to borrow money. That–coupled with buyers’ expectations of lower prices–fuels secondary buying activity. Whereas other sectors of the economy feel recessional effects earlier on, the real estate industry remains fairly insulated for a time.

Although you would’ve been hard-pressed to find many brokers to admit it in the fall, Alan Rogers, chairman of Insignia Douglas Elliman, said in October that evidence of panic did turn up immediately after the September 11th attacks. He told of one Wall Street couple that forfeited their deposit of $500,000 on an apartment just to be free of their contract and get out of Dodge. There were scattered reports of residents leaving downtown in the aftermath of the attacks, and some residents recounted tales of prospective lessees being lured by lower rental rates. But it was impossible to put a finger on what was going on. Hard data to demonstrate the trend simply wasn’t available. Across the board, there were stories of anxious buyers contacting agents to buy at deeply discounted prices, but–according to brokers–there were no deals to be had.

Recently released annual reports, however, spell out the figures. The Corcoran Group’s Year-2001 analysis cites that while the first half of the year basked in a robust market, the gradual slowing of the economy, coupled with the extraordinary events of September 11th, caused a brief period of eroded consumer confidence resulting in decreased sales volume in the fourth quarter. The worst hit downtown was the family market–two- to three-bedroom apartments. From October through December, sales prices for two-bedroom co-ops were down eight percent and three-bedroom prices were down ten percent. Condo sales in the area were just as bad. The price of a two-bedroom condo slipped a remarkable 26 percent from the third quarter, with the average price falling from $981,000 to $725,000. And the average price for a 2,000- to 2,500-square-foot downtown loft also fell 11 percent, from $1.337 million to $1.194 million.

Brokers now admit that selling froze in September, but they say by October, buyers had jumped back into the mix. According to recent reports, things remain just fine for average buyers. Prices have topped out and small apartments are selling fast. It is this activity that appears to be supporting the entire residential real estate business. The Corcoran Group, William B. May and Charles H. Greenthal all sold more small apartments this November than they did last November. More than half of Corcoran’s November sales were for less than $500,000.

While Insignia Douglas Elliman statistics estimate that the overall average sales price of Manhattan apartments in the last quarter of 2001 was down eight percent to $782,282 from third quarter’s $849,194, the figures merely return the market to 2000’s levels. Significantly, the current average sales price is less than one percent below the fourth quarter statistic of 2000. "After considering the unprecedented attack and reports that Wall Street bonuses are averaging 30 percent below last year, this modest change is quite remarkable," the Manhattan Market Overview stated. "It is also consistent with market resiliency seen nationwide… Housing inventory, although expanding, is still relatively limited." And at a cautious time like this, the good old laws of supply and demand just might keep the situation in check. The Manhattan Market Overview suggests that further declines may be tempered by the favorable mortgage rates stimulated by the Federal Reserves’ interest rate reductions and the limited supply of apartments.

While it might be tempting to look at the overall statistics and expect your broker to find you a bargain-basement deal, don’t hold your breath. Manhattan real estate is still Manhattan real estate. The figures are down overall, but that’s relative to earlier this year; the market appears to be holding steady at 2000 levels. "The New York City residential marketplace shows very positive signs of a return to business-as-usual," comments Paul Purcell, president of Insignia Douglas Elliman. "Our brokers are telling me that they are becoming very busy again and that prices are holding on the properties they’re marketing."

The main difference is the increase in average days on the market. As compared to the fourth quarter of 2000, the listing time last quarter increased ten percent to 134 days. Buyers can–and are–taking their time. And they’re finding that they have some room to negotiate. The average discount from list price more than doubled to four percent from a year ago (a figure that was little changed from the 4.1 percent of the third quarter of 2001, however).

Overall, 2001 was a year of only modest declines. While a sense of uncertainty still lingers, things seem to be just fine for average buyers and sellers. The bidding has resumed and small apartments are selling fast. After months of silent phones, brokers say and they’re busier than they’ve been for a long time. And for some, this activity overrides insecurity about the future. Fueled by the low mortgage rates afforded by the Fed and a general sense that prices have finally topped out, more and more first-time buyers are coming to the table. The only difference is that this time around they’re motivated by frugality instead of lavish luxury.

Ms. Grover is a freelance writer living in South Amboy, New Jersey.