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Three Cents Worth: Knocking the Luxury Effect Down a Peg

[This week, our numbers guy Jonathan Miller plots square footage and price per square foot of the average Manhattan apartment and the average Manhattan luxury apartment. Quick rundown of what's what in the graph below (which features an unprecedented 4 lines) before we hand it to Miller: the green line is the average sqft in the overall market; blue line, avg sqft for the lux market; red line, price per sqft, overall; yellow line, price per sqft, lux. The y-axis runs from 0 to 3,500 for sqft (on the left) and to $1,800 for price per sqft (on the right). The x-axis runs from the first quarter of '01 to the third quarter of '05. Finally, as a special gift to you, the reader without 20/10 vision, the image below now clicks through the larger version at MillerSamuel.com.]



This week I thought it would be interesting to look at both the overall market (all co-ops and condos) and the luxury market (just the top 10% of all sales). Because I rarely get the opportunity to graph a chart with 4 lines, I decided to track two measures: the average size and the average price per square foot. The takeaway from this graph is that the price per square foot of overall market rose steadily, with or without the luxury sector's help.

After the jump, a closer look at the two slices of the market.

There is no doubt that the luxury market has been grabbing the headlines. Luxury housing prices rose considerably on a total dollar basis over the last four years. And, on a per square foot basis, the luxury sector went from $1,156 per square foot to $1,477 per square foot, a 27.8% increase from 3Q 01 to 3q 05. (This period includes a drop after 9/11 and the recent quarter due to the shift in the mix of units sold at that time.)

However, the overall market increased at more than twice the luxury market's rate over the same period, by 67.9%, from $586 per square foot to $984 per square foot. In terms of dollars per square foot, the overall market also increased by a greater amount than the luxury market, by $398 versus $321 per square foot. That's not a bad increase for either sector, but it is somewhat surprising that the overall market was the better performer.

In terms of square footage, the luxury market generally trended upward over this period while the overall level remained relatively flat. The sharp drop in the average square footage of luxury units sold this quarter tempered this 4-year comparison. The average size of a luxury apartment fell 5.9% from the 2,753 square feet to 2,589 while the overall market average square footage fell 7.9% from 1,268 square feet to 1,169 square feet. This current overall average square footage of a Manhattan apartment was at its lowest level during this 4-year period. Luxury units, at 3,027 square feet, were at their highest level ever recorded in the prior quarter.

The takeaway from this is that the price per square foot of overall market rose steadily with our without the luxury sector's help. The overall apartment square footage of sold units was fairly consistent over the past 4 years with a modest decrease in the most recent quarter, but its too soon to recognize this as a trend toward smaller apartments.
· Overall and Luxury Markets: Graph [Miller Samuel]