At times like this, when large fluctuations in prices are occurring quickly but not systematically, the art of spotting a good deal becomes a whole lot trickier - and a whole lot more important.

A number of factors complicate the matter. The first and foremost of which is the role of your home in your personal finances. For most people, even for many exceptionally wealthy people, their home is their single largest investment. Keeping this fact in mind complicates the buying process. Finding the best deal becomes not a process of finding the lowest price on a reasonable piece of property, but a search for a New York City apartment that is also a quality long-term investment.

Second, at the end of the day, no matter how many great search engines and housing listings there are, nothing can substitute for the actual visiting of apartments. Homes are idiosyncratic things, and you’ll often find something that you really cherish, but that doesn’t necessarily add much to the final price tag. These types of almost quirky New York City apartments are often where you find the best deals, when you find the one that is just right for you.

It’s this type of apartment-to-apartment, on-foot searching that is often the most crucial stage of the buying process. It’s also where working with a buyer’s broker can save you an incredible amount of time and effort. Buyer’s brokers know the market like the back of their hand and aren’t interested in selling you something from a limited inventory.

One statistic that is particularly helpful in determining whether or not an apartment is a great deal is the price per square foot, not as it relates to all apartments in the city - though that’s helpful, too - but how that price relates to similar apartments.

A particular point to remember when on the prowl for deals: 20% off of a New York apartment that was 30% over-valued is still a bad deal. In this city, prices shot sky-high before the crash, and they are going to take a while to come back to earth. Right now, a lot of the price movement has been movement off peak prices - not off a more objective measure of the actual value of the apartments. All this is to say that you shouldn’t be dazzled by the difference between the current and previous asking price.

Sellers all too frequently confuse their hoped-for price with the actual price. Real estate markets function: If no one was buying at the previous price, it was for a reason.

Now that the last couple of weeks have seen some glimmer of hope coming from the financial markets, the talk in many markets has once again turned to whether or not we’ve seen the bottom.

What is clear is that the longest recession since the Great Depression is not close to done yet. The two most important national indicators – GDP and the monthly employment figures – will still be the bearer of bad news for many more months. These indicators, however, always lag a national recovery, and it may be that the free fall of the last six months or so has abated.

The question now is whether real estate is a lagging or forward-looking indicator. The national market certainly led us into this recession, so, unlike the past few recessions, the national real estate market may actually be a leading indicator.

The New York apartment market, however, lagged significantly behind the developments of the national market. The fundamental question is whether that lag was just a symptom of exceptional strength, or does it mean that the New York City apartment market will see its bottom long after most major US real estate markets?

New York real estate market-wide figures will certainly continue to decline for the rest of the year and into a substantial portion of 2010. What that means for markets on a neighborhood-by-neighborhood basis, however, is less certain.

There is an underlying confidence in the long-term prospects for the New York apartment market that is hard for any macroeconomic trend to beat down for too long. Some analysts are currently seeing sales prices that are 25% off their 2008 equivalents. The most dire predictions calls for a fall-off of about 40% of peak value.

With the financial markets transitioning back to their regular dynamics, it is likely that the New York apartment market – which is very tightly connected to the health of the financial sector – will not be too far behind in its recovery.

With inventory levels still bloated, though, it is likely there will be at least one more round of significant price cuts among some of the larger New York developers. Still, notice that all these statements are city-wide.  Some neighborhoods have already seen their bottom; some still have a long way to go.

In such a varied market, it is important to actively follow developments and price changes, so that you can make an offer at exactly the right time.  Several months of sharp attention to the market may well save you tens of thousands of dollars.

Past is prologue in most aspects of life, especially when it comes to economics. The downturn today might be unique in terms of the actual confluence of events that preceded it, but looking at past examples of how the New York City apartment market reacted downturns in the macro economy still gives us a whole lot of very useful perspective.

Fortunately, the Furman Center for Real Estate and Urban Policy has just released an extensive report that focuses on the past two downturns in the market and what we can expect from them. Some of the key figures:

As we can see from these basic, top line numbers, recent downturns have been nowhere near the size of recent upturns.

These top line numbers hide incredible neighborhood-to-neighborhood variance. In fact, knowing how one neighborhood does in the previous recession gives you very little predictive power for how that neighborhood will do in this recession. Despite the variance, however, the same general pattern holds: Recessionary periods tend to be shorter and shallower than do expansionary periods.

For practical purposes, that means that if you buy an apartment, and prices continue to depreciate, that apartment will likely lose far less value than it will gain during the next boom time. This statement, of course, doesn’t apply to every apartment in the New York City real estate market, but it will apply to the vast majority of them.

One interesting datum: Despite the low correlation between performance during the past two downturns, performance during the past two upturns is actually quite highly correlated.  This means that one of the smartest data sets you can look at as a potential buyer is how the value of the home you are looking at performed in the boom period that just ended.  If it shot up towards the end of the boom, it might still have some room to fall, and you might want to pass. But if it performed well throughout, then perhaps you are looking at a solid investment.

Also, it’s important to look at what the city government is doing around you. Especially if you are in a marginal neighborhood, what the city is doing there in terms of investment can be one of the most important factors in determining future values.

Like so many things in life, knowing what happened to your potential New York City apartment before you came along will go a long way towards figuring out what will happen to it.

State of the City’s Housing & Neighborhoods [ Furman Center for Real Estate ]

With the seemingly all-consuming election finally over, the real estate industry is turning its attention again to the country’s major markets. The epicenter of the national market is, once again, New York City. The financial debacles of the past economic era have ushered in a new set of conundrums for investors, and the city’s market resembles the national market, yet with important factors considerably more poignant.

The positives in the NYC real estate market are much more positive than most of the rest of the country, but the negatives are also more negative. The financial crunch has hit the city like everywhere else, but has also threatened the city’s jobs sector, as numerous NYC-based investment firms have either consolidated or folded completely. The long-term demand for apartments, on the other hand, remains high from a historical perspective.

While the gentrification of many neighborhoods will presumably stall over the next several years, there is little to no likelihood that New York City’s situation will return to what it was during the late 1970s. That being said, hipsters that recently bought condos close to Morrisey might be in for a little disappointment about the direction their neighborhood takes over the next several years.

Queens in particular seems like its rough patch will only get worse during the coming several quarters.
Apartments on the market have increased dramatically, both in terms of year-on-year numbers and in comparison to the previous month. The figures were +33.8% and +14.4%, respectively.

These are especially negative numbers. It is likely the near future will see a significant reduction in the average prices of many neighborhoods, even if the luxury market remains functional and even-keeled.
One sign of relief has been the stalling of the US dollar’s recent rapid climb. If the absolute ceiling to the dollar’s value is somewhere around $1.30 per euro, than the city has little to fear in terms of losing the strong stimulus that a weak dollar provides to the real estate market here.

While the worst is yet to come in terms of the macroeconomic data, the downturn of the recent downturn in the New York City real estate market is probably more severe than it will be during the rest of the year: Credit markets froze for a considerable length of time, and it was hard for anyone to get reasonable conditions on their mortgage loans, if they even had access to quality credit in the first place.

The sector of the market that is most likely to get hit hard are landlords with units that are not an A or A+ in their overall quality. Owners that think they still have a strong hand to play in terms of negotiating sales details are in for a very rude awakening. Most buyers are still actively looking, but feel perfectly content to rent for another year.

This being New York City, though, that might be a good thing. It’s about time the buyers had a powerful hand to play.

Surprising some analysts, prices continued to rise in the 3rd quarter, according to recently released numbers. The average sales price in Manhattan climbed by 8.1% to roughly $1.5 million. The average price per square foot increased 4.1%.

The disparity between the two numbers is a reflection of the fact that new luxury apartments fueled much of the price increase in Manhattan.

These numbers however, are incidental in comparison to the changes in inventory and the number of sales.

Manhattan saw a decrease in sales volume of 24.1%. While some of this decline is surely buyers sitting on the sidelines while the macroeconomic situation sorts itself out, the larger portion of the decline likely comes from a longer-term softening of demand.

The national recession and the current financial market madness plays are both major factors in the reduced demand the New York real estate market. Today the Dow briefly dipped below -800 for the day before rallying back to close at a 3.8% loss for the day.

It is hard to imagine many buyers seeing a -800 next to the sign for the Dow Jones Industrial Average on CNBC getting up from in front of their TVs and saying, “Well, honey, let’s go real estate shopping.”

Similarly, today was especially bad news for NYC real estate market in terms of foreign demand, with the euro falling to its current level of $1.35.

Still, it’s important to not confuse the dramatically horrid news of the past two weeks with the current state of the New York City real estate market. Today’s events were not in response to new events so much as the world’s financial markets waking up to the fact that Europe’s major economies are also in serious trouble, just as much as the US is.

No one – other than, perhaps, John McCain – would say the “fundamentals of the market are strong” when talking about the short term of the NYC real estate market. In many measurements of the market’s 3rd quarter performance – especially those including surrounding suburbs – the year-over-year numbers saw a significant increase, but the quarter-on-quarter numbers showed an equitable decline. That’s always a bad sign in terms of the capacity for prices to fall at a rapid pace.

Looking beyond 2009, however, the picture does not look especially bad, so long as no near-depression breaks out on the national level.

As the government begins its bail-out program in full earnest, many of the jobs lost in New York City’s private sector financial industry will be absorbed by a government which will need thousands of new financial analysts to manage its expanded role in the financial markets.

The macroecononmic picture is indeed bleak right now, but New York City will do far better than most cities in the coming years.