IT COULD be the largest property transaction in modern US history. In late August the insurance company MetLife announced that it intended to sell Stuyvesant Town and Peter Cooper Village — two vast Manhattan housing estates with an estimated value of $5 billion (£2.6 billion). MetLife is open to offers for the 11,200 apartments: if no bid meets its price, it will not sell.

Experts might question the insurance giant’s timing. Real estate brokers in New York agree that the city’s property boom is over. This summer the inventory of available housing in New York City hit a 10-year high as Manhattanites, so accustomed to selling their properties within weeks of putting them on the market, have started finding it much more difficult to sell.

The Manhattan market is nothing if not resilient. Even the devastating terrorist attacks that took place five years ago failed to derail its extraordinary bull run, which has seen the average house price rise by a staggering 205 per cent to $1.2 million over the past decade. In 1996 the average Manhattan home cost just under $400,000. The average price per square foot has risen from $304 in 1996 to $965 this year.

But house prices have not been the only figures on an upward trend. US interest rates have been rising steadily for the past two years, gradually increasing the cost of borrowing. Meanwhile, the housing market across the country has slowed down dramatically, with sales of American houses dropping to their slowest pace for two and a half years.

And there are signs that the New York City market is beginning to falter. “New York prices are not falling, but they are growing at a much slower rate than they were 18 months ago,” says Liam Bailey, head of residential research at Knight Frank. “And there are indicators pointing towards higher levels of new unsold properties in New York.”

Miller Samuel, a Manhattan residential real estate appraisal company, says that the number of homes on the Manhattan market — including both resale and new development — is 54 per cent higher than it was at this time last year. At that time the average Manhattan property was on the market for 102 days before it sold. Now sellers are having to wait 144 days before they get a sale and they are being forced to accept lower prices for their homes.

Miller Samuel’s figures show that the average discount from list price is now 3.5 per cent, more than double the 1.6 per cent discount seen this time last year. Real estate brokers say that sellers are much more willing to negotiate than they were a year ago.

It is not just the average New Yorker in the street who is having problems selling a property. Sales at the top end of the market are struggling, too. Britney Spears put her NoLita apartment up for sale for $5.5 million back in 2004, but found a buyer only this summer — by which time the price had fallen to $4.45 million.

However, experts insist that the Manhattan market is not heading for a severe downturn, no matter how the rest of the American housing market behaves.

“There are two factors in New York’s favour,” Bailey says. “One is that New York is one of three truly global cities — the other two are London and Tokyo — where there is a concentration of businesses and young, affluent, aspirational people who underpin the demand for residential property.”

The second factor is that New York City’s prime property location, Manhattan, is not getting any bigger. “The fact that it is an island means that the potential development of new supply takes time. There is always scope for new development and for new gentrification, but this is not an area which shares the main US market characteristic — endless new supply.”

Harlem is perhaps the best example of gentrification at work. Once New York’s most notorious district, Harlem is being transformed by property speculators who are snapping up 19th- century brownstones. Harlem prices may have risen by more than 30 per cent over the past year, but they remain well below the Manhattan average, with four-storey townhouses selling for less than $1 million. Sotheby’s International Realty recently sold a house on West 130th Street for $3.8 million, the most expensive townhouse in Harlem.

Gentrification has pushed out beyond Manhattan’s boundaries, too. In the 1980s a flood of artists invaded the then largely industrial district of Williamsburg in north Brooklyn, seeking refuge from the rising property prices in Manhattan. By 2004 the district contained more than 70 galleries and hundreds of trendy restaurants. The hipsters may have come and gone (one New York magazine describes Williamsburg as the real estate equivalent of camouflage: “so beyond over it’s verging on timeless”), but they have left behind them property prices almost as high as those across the East River. Last year the price of the average townhouse in Williamsburg rose from $700,000 to around $1.1 million.

Another Brooklyn suburb to see its fortunes rise is Dumbo (Down Under the Manhattan Bridge Overpass), dubbed “the new East Village”. Situated between the Manhattan and Brooklyn Bridges, it has cobblestone streets, warehouse buildings perfect for loft living and incredible views of the Manhattan skyline. Two apartments in a converted cardboard-box factory in Dumbo sold this summer for $5.8 million.

New York City has never been seen by Brits as a great destination for investment, although the relative weakness of the dollar should make it very attractive. However, whether now is a good time to buy is a difficult question. In some areas investors may find themselves paying very high prices, although whether they would be buying at the top of the market is difficult to say. Bailey says potential investors would be wrong to hold out for a significant decrease in prices. “With price growth already slowing, there is much less concern that the market will see price falls in the next year or so.”

Affordability is higher in Brooklyn, but there are investment hotspots in Manhattan, too. Lower Manhattan, or Downtown, the financial district that has become increasingly residential over the past few years, is increasingly tipped by brokers as a good place to buy.

Generous tax incentives offered to entice developers and businesses back to the area following the terrorist attacks of September 2001 have meant that the district is now much more “mixed use”, while still benefiting from considerably lower prices than those in more fashionable Midtown.

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