Prior Year Annual Review

Excerpted from the 1995-2004 Prudential Douglas Elliman Manhattan Market Report [prepared by Miller Samuel Inc.] Analysis of themost recent quarter is also available.

The Manhattan Market

MORTGAGE RATES REMAIN LOW, FUELING DEMAND

Manhattan continues to be a mortgage rate driven real estate market. Experts have been predicting an increase in mortgage rates since early 2004 but this has not yet occurred. In June, the Federal Reserve attempted to bring short-term rates back up to historic norms and keep inflation in check through a series of 25 basis point increases. However, mortgage rates actually edged lower for the second half of 2004 remaining at or near historic lows. The 30-year fixed mortgage rates fell 22 basis points for the year. The disparity between the direction of short term and long term rates may be partially explained by economic growth that has fallen short of expectations. Job creation, one of the key indicators of economic growth has not posted the level of gains nationally that were expected. Locally, job creation in the financial services sector has been one of the few areas that has not seen notable hiring increases and is behind other sectors of the New York economy. However, incomes related to the financial services industry are up, including 10-15% gains in bonus compensation over last year, which has provided a source of demand for Manhattan housing.

PRICE RECORDS SET IN NEARLY ALL MARKETS

The average sales price of a co-op and condo apartment on the entire island of Manhattan exceeded $1,000,000 for the first time to $1,004,232, an increase of 18.1% above the prior year average of $850,340 and 140.5% above the prior decade average of $417,585. The average price per square foot set a record of $767 per square foot which is 14.1% above the $672 price per square foot record set last year and 136.7% above the $324 mark seen in the prior decade. Median sales price, the mid-point of all sales prices in the survey, saw a similar pattern. The median sales price exceeded $600,000 for the first time, reaching $605,859 for the year, a 22.4% increase above the prior year level of $495,000 and 192% above the prior decade level of $207,500. The increase in median sales price outpaced the increase in average sales price demonstrating that the gains were across the board and not due to excess influence by price levels at the upper end of the market.

APARTMENT INVENTORY FELL FOR SECOND STRAIGHT YEAR

The number of apartments available for sale fell for the second consecutive year. At the end of the current year, there were 3,922 exclusive listings available, down 19% from 4,843 listings at the end of 2003. The current inventory total is down 34.4% from the 2002 year end total of 5,977. It is anticipated that inventory will begin to rise modestly in the first quarter of 2005 as sellers attempt to take advantage of increased demand and higher activity levels in the second quarter spring market. Developers have attempted to "catch up" to the market by bringing more units to the favorable development environment over the past several years. However, inventory levels may not be as out of sync with demand levels in 2006 as rising mortgage rates are expected to bring more balance to the market in terms of price levels and marketing times.

The Co-op Market

PRICE INDICATORS FOR ISLAND POSTED RECORDS

The average sales price Manhattan co-op apartment increased 13.8% on average this year to a record $846,595, more than double the average sales price of $418,079 seen in 1995. The average price per square foot set a record of $696 per square foot, up 11.7% over $623 per square foot seen in the prior year and more than three times the $226 per square foot seen in the prior decade. The median sales price of a co-op also set a record reaching $500,000 for the first time, up 19.6% over the $418,000 median sales price reached last year and up 171.7% from $184,000 in 1995.

CENTRAL PARK WEST AND SOHO/TRIBECA SHOWED LARGEST GAINS

The median sales price for co-op apartments on Central Park West showed the largest year over year gains, increasing 32.7%. Several unusually large co-ops with a Central Park West address changed hands in 2004. However, since the median sales price removes the high and low sales, the record increase in prices was more broad-based rather than an anomaly. The median sales price of an apartment on Central Park West in 2004 was $2,250,000 up from the $1,695,000 median sales price seen in the prior year. The second highest co-op market was located in the Fifth/Park Avenue Corridor with a median sales price of $1,625,000 up 21.5% over the prior year median sales price of $1,337,500. Soho/Tribeca posted the second largest gain in median sale price at 30.4% to $1,350,000 up from the prior year median sale price of $1,035,000. Loft apartments continue to be in high demand. The median sales price of a Soho/Tribeca co-op tied the median sales price, but outpaced the 17.4% increase in co-op prices seen in Chelsea.

ENTRY-LEVEL MARKET GAINS SHARE

Entry-level apartments, defined as studio and 1-bedrooms, had a 55% market share up from 52% seen in 2003. The perception of future increases in mortgage rates as the economy improves may be what is driving the gain in share of the entry-level segment, which tends to be more reactive to changes in mortgage rate patterns. At the same time, there was small gain in market share of 3 and 4 bedroom apartments which saw a 6% share in 2003 and a 7% share in 2004.

AVERAGE SQUARE FOOTAGE SEES MODEST INCREASE

The average size of a Manhattan co-op apartment increased 1.8% to 1,216 square feet from 1,195 square feet in 2003. The average size of a studio apartment was 476 square feet while the average size of a 1-bedroom was 729 square feet down 1.3% and 1% respectively from the 482 and 736 averages seen in 2003. The 2-bedroom apartment market increased 3.3% to 1,378 square feet from 1,334 square feet last year. The 3-bedroom market saw the largest gain by increasing 6.2% to 2,433 square feet from 2,290 square feet. The average size of a 4-bedroom apartment increased 3.7% over the past year to 3,825 square feet from 3,689 square feet.

The Condo Market

RECORD PRICES SET IN MOST MARKETS

All three price indicators for the entire Manhattan borough set records for 2004. Manhattan average sales prices increased an average of 18% to $1,240,939 as compared to the $1,051,993 average set in 2003. This is 138% higher than the $521,393 average sales price seen in 1995. The average price per square foot rose 14.1% to $873 per square foot from the $765 per square foot average set in the prior year. This was 91.4% higher than the $456 average price per square foot set in 1995. Median sales price exceeded $800,000 for the first time for the entire island for the first time in this study. The $804,418 median sales price this year was 14.9% above the $700,000 median sales price last year and 223.1% above the $249,000 median sales price set in 1995.

GREENWICH VILLAGE HAD LARGEST GAIN IN MEDIAN SALES PRICE

The median sales price for condo apartments in Greenwich Village increased 66.7% to $1,600,000 above the $960,000 median sales price seen in 2003 and 533.7% above the $252,500 median sales price seen in 1995. The surge in prices as compared to the prior year and decade was attributable to the shift in larger new units entering the market which tend to be in excess of 1,800 square feet. The average square footage of all Greenwich Village condo units sold was 1,636 square feet this year while only 1,457 square feet and 1,053 square feet in 2003 and 1995 respectively. Battery Park City saw the second highest increase in median sales price which was 56.1% to $515,000 over the $330,000 seen in 2003. Midtown West/Turtle Bay saw the third largest gains at 41.2% with median sales price rising from $425,000 in 2003 to $600,000 in 2004. The neighborhood of Soho/Tribeca had the highest median sales price of all condo markets at $1,615,000 with Greenwich Village in second place and Chelsea at $1,150,000 in third place.

OVERALL MARKET SHARE BY NUMBER OF BEDROOMS UNCHANGED

The market share of condo units remained unchanged as compared to the prior year. Studio apartments comprised 11% of all unit sales while 1-bedroom apartments comprised 34%. Together these entry-level units represent 45% of all sales which is well below the 55% entrylevel market share seen in the co-op market. The condo market is more heavily weighted with 2-bedroom apartments than the co-op market with a 49% share and 38% share respectively. The 3-bedroom and 4-bedroom markets were have 5% and 1% of the market respectively.

AVERAGE SQUARE FOOTAGE SEES MODEST INCREASE

Condo units in Manhattan averaged 1,421 square feet in 2004, up 2.8% over 2003. The gain in square footage occurred in the 1, 2 and 3-bedroom markets while a sharp drop occurred in the studio and 4-bedroom markets. The average square footage of a studio unit fell 13.6% over the past year from 596 square feet to 515 square feet. The 4-bedroom market dropped 8.5% in average square feet from 4,620 to 4,227.

The Townhouse Market [from 2003, The 2004 report is coming soon]

The average sales price of a Manhattan townhouse, defined as a 1-5 family property that could be delivered vacant, increased 10.1% this year to $4,041,650, breaking through the $4,000,000 threshold for the first time and setting a new record. This price is essentially double the record seen in 1998 when the average sales price at $2,021,767 exceeded $2,000,000 for the first time. The average price per square foot declined slightly this year, dropping 2% to $853 from the $870 record set last year. This suggests that a portion of the average sales price increase this year was attributable to the increase in the average size of a townhouse sale. Size increased 12.3% in 2003 to 4,738 square feet, from 4,220 the prior year. Larger 3-5 family houses gained market share due to limited inventory and upside potential conversion to 1-2 family houses. In 2003 135 townhouses transferred ownership, 10% fewer than the record 150 sold in 2002. The decrease was largely attributable to the 8.4% contraction of listing inventory to 261 townhouses, down from the prior year level of 285.

Important Notice: This analysis may not be reproduced or used in whole or in part, except with proper credit as to its authorship. To view general information on the preparation of the market reports view the methodology section.