After the release of our 3rd quarter [Prudential Douglas Elliman Manhattan Market Overview](https://millersamuel.com/reports) last Tuesday to the media and [the frenzy of coverage](https://millersamuel.com/press) during the week as a result, the New York Times ran an excellent overview of the market story this weekend called [A Mixed Message [NYT].](http://www.nytimes.com/2005/10/09/realestate/09cov.html?pagewanted=print)

Since then, I have received many inquiries about the state of the market over the week from real estate brokers, wall street firms and lenders to interpret the statistics in the report that were played over and over in the media firestorm. Whats been fascinating about this whole experience is how much coverage was given to the average sales price statistic, which could not stand on its own without explanation. Hopefully I don’t sound too cynical but this stat was likely used because it showed the most negative result.

Here’s a quick list of the highlights of the current market that are most useful:

* The average price per square foot set an all-time record reaching $984 per square foot and rising 1.4% from the prior quarter. This is the telling statistic. The overall market increased this quarter, but not at the same torrid pace as before. The rate of appreciation has eased. In fact, since larger apartments generally sell for more on a per square foot basis than smaller apartments, one could make the argument that the shift in unit mix also tempered this indicator as well.
* There was a significant shift in the mix of apartments that were sold. The average sales price dropped 12.7% because the market share of entry-level apartments (studio and 1-bedrooms) spiked 5% and activity at the upper end dropped off.
* Entry-level sales surged because of concerns over modest increases in mortgage rates are expected. Of course, this has been the speculation since mid 2003 but this time, with rising fuel prices, comments from the Federal Reserve about housing, mortgage rates may actually rise.
* High end sales activity eased rather than prices dropped. The luxury market average sales price dropped 26% from last quarter because fewer sales at the upper end occurred. There were 17 sales at or above $10M in the 2nd quarter and only 4 sales at or above $10M tracked in the 3rd quarter. In fact, a high end broker contacted me to say there were 5 such sales this quarter, but didn’t realize that one of them closed in the prior quarter. Nevertheless, whether 4 or 5, the sales activity was well below 17 sales. This doesn’t indicate that prices collapsed, but that a shift in the mix of apartments that sold in the upper 10% of the market.
* Inventory did increase this quarter and was more heavily weighted with condos than co-ops. Since inventory came on at generally the same pace as the number of sales eased, inventory built up. This was attributable to seasonal considerations (thats a stretch) and bad economic news, rising gasoline prices, over saturation of bubble speak for the past 6 months and negative economic news relating to the 2 hurricanes.
* There are expectations of record Wall Street bonuses at yearend due to the solid year seen by investment bankers and a number of other sectors in the financial district. Historically, Wall Street bonus income has flowed through the real estate economy after the New Year.

Here are a handful of all the interviews I did which basically re-iterate most of these points.

[[Focus on Business (Canada)]](https://millersamuel.com/press/view.php?V=1128834935Lfglh)

[[Bloomberg Television]](https://millersamuel.com/press/view.php?V=1128828123SgtqR)

[[WCBS Channel 2]](https://millersamuel.com/press/view.php?V=1128827846FXTkC)

[[WNYC Radio (Brian Leher Show)]](https://millersamuel.com/press/view.php?V=1128832735BEaXG)

[[WNYC Radio]](https://millersamuel.com/press/view.php?V=1129058323KxZMP)

[[Bloomberg Radio]](https://millersamuel.com/press/view.php?V=1129058323KxZMP)

[[WCBS Radio]](https://millersamuel.com/press/view.php?V=1128827549vdTfM)


3 Comments

  1. Ashish Shah October 9, 2005 at 1:18 pm

    Good interview by Jonathan on Bloomberg. He was able to summarize all the salient points of his research and analysis in the interview. A herd mentaility can be dangerous in the real estate market, and just looking at “some” of the indicators from the 3 Q report in isolation is to be avoided.

  2. John Philip Mason October 11, 2005 at 9:39 am

    Unfortunately, it seems headlines sell more than content does. I wonder how many people take the time to research stories for themselves. Anyone who has been reading your reports over the past several years has seen a clear, almost unabated trend. That is, the lower half of the market (below the Median Sale Price indicator) has been catching up with the upper half. And now the lower half has so outpaced the upper half, the result is a decline of the Average Sale Price indicator. This is due to a number of factors including an increasing population in New York City, the return of many suburban empty-nesters who are willing to trade space for lifestyle, an effort by the lending industry to target low end buyers with more relaxed lending requirements, the lack of new, smaller housing units being built, the continued decline in the number of persons per household, and more. And let’s not forget the spectacular price increases, which have forced more and more buyers to opt for smaller units, as they are priced out of their larger dream home. (Remember the term bracket-creep?) It’s no wonder there’s been a resurgence of the studio and one bedroom market. That market was over-built in the 1980’s, but has been ignored for the past 10 years. But alas, a headline of “10+ Year Real Estate Market Trend Continues” isn’t going to sell many newspapers.

  3. Elvira Black October 8, 2006 at 1:34 pm

    This is a terrific reality check–very heartening–though as the previous commenter mentioned the nuances don’t sell papers…

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