When Daniel Allen and his wife, Elizabeth, decided they were finally ready to leave their apartment on West 15th Street and buy a house in the suburbs, the couple found themselves repeatedly outbid.
It wasn’t what Mr. Allen, an architect, and Ms. Allen, who now works part time for a small investment bank, expected when they went house hunting over the past year amid the biggest housing downturn in a generation.
But brokers say that so far this year, Manhattan’s bedroom communities have undergone a boomlet in sales and rising prices as city dwellers have been looking for housing bargains in nearby suburbs that were hard hit during the downturn.
The stabilization of the Wall Street economy is helping drive sales—and boosting prices—in these affluent neighborhoods that have easy Manhattan commutes and offer good schools, broker and analysts say. From Milburn and Summit in New Jersey, to Great Neck and Manhasset on Long Island, the close-in suburbs are outperforming the rest of the slumbering regional housing market.
The same is true north of the city. “You can measure the recovery in Westchester by how far you are from Manhattan,” said Chris Meyers, chief operating officer of Houlihan Lawrence, the largest brokerage firm in Westchester County.
Jeffrey G. Otteau, president of the Otteau Valuation Group, a New Jersey appraisal and consulting firm, said that New Jersey towns with short, direct train rides to Manhattan outperformed the rest of the state during the first half of the year.
“We have seen the effects of the Manhattan rebound in the market we describe as Midtown Direct,” he said.
The suburban bump echoes rising prices of sales in Manhattan during the past few quarters. In the ring of towns in Westchester nearest to New York City, median prices are up 14% this year, and are only 3% below the market peak in 2006, according to Houlihan Lawrence.
In contrast, in northern Westchester, median prices have risen 3% and remain far below the peak. The number of sales in southern Westchester were up 12% so far this year and were running well ahead of sales in 2008 and 2009.
Mr. Meyers said that steeper declines in prices during the downturn had made “the suburbs relatively more attractive than they were three or four years ago.” And he noted that many asking prices for individual houses were still 20% to 25% below the market peak.
For the past three years, he said the percentage of Westchester home buyers who lived in New York City has been rising, and city exiles now make up 28% of all buyers of homes in the county. As a result, prices in Mamaroneck were up 13%, and up 10% in Port Chester and Hastings-on-Hudson.
When the Allens started house hunting last year in Westchester, they found a frozen market with many overpriced properties with owners who wouldn’t come down. But in the spring they tried again and discovered things had changed. “There was a competition for houses in the market we were in,” Mr. Allen said.
They were looking for a fixed-up four-bedroom house priced between $1.2 million and $1.4 million in Rye or Larchmont. At first they found themselves outbid on several houses. When they made a handshake agreement on one house in Larchmont, the seller told them another buyer had offered $100,000 more, causing the Allens to walk away.
In the end, the Allens changed strategies. They looked at a less competitive market—lower priced houses that needed work—and in August closed on a spacious four-bedroom house in Rye, near Long Island Sound, for $825,000, and immediately began a renovation.
Looking back, Mr. Allen said his old neighborhood in the city was like a “small village,” but he wanted more space than his two-bedroom apartment.
“People live with less in New York City, for the most part,” Mr. Allen said.
The sweet spot in the market this year has been houses in good condition in affluent neighborhoods in good school districts, with relatively short commutes. Trophy estates and lower-priced neighborhoods haven’t shown the same bounce, brokers said.
Mr. Meyers said the now-expired federal tax credits of as much as $8,000 for home buyers had little effect on sales in these towns.
Across New Jersey, Mr. Otteau said median home prices had risen less than 2% in the first half of the year. But in the Midtown Direct corridor, with direct commutes of 35 minutes or less, he said prices rose 5.7% and sales rose 24%.
Sales rose even more in the New Jersey condo market across the river from Manhattan, but with a surplus of new condominiums, median prices fell by 8.2%.
Dottie Herman, president of Prudential Douglas Elliman, said that the North Shore of Nassau County outperformed the rest of Long Island.
In Connecticut, Paul Breutnich, the head of William Pitt Sotheby’s, said Fairfield County was “hit harder than Westchester” but is following the same trends.
Sometimes Manhattan buyers are stunned by the high property taxes in the suburbs. But Mr. Allen’s broker, Fiona Dogan of Julia B. Fee Sotheby’s, said that many buyers come to Westchester because of its public schools, and understand they are saving many thousands in private-school tuition in the city.
City residents Pamela Furman, an optometrist, and her husband, Stephen Roxland, who works in information technology on Wall Street, fell in love with a five-bedroom house in Purchase, N.Y., and closed on it a few weeks ago.
They had a yen to move from their apartment in Lincoln Towers and start a family, she said, but they were also attracted by the lower prices.
“We figured that prices have come down and we would get a better deal,” she said. “If prices hadn’t come down, we would have stayed in the city longer.”
Write to Josh Barbanel at josh.barbanel@wsj.com
