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Three Cents Worth: Apartments, Upward!

[Jonathan Miller, president and CEO of real-estate appraiser Miller Samuel and always a fan of the numbers and bars, loves telling the Curbed audience what the hell's going on, because lord knows we can't. In this week's graph, Miller explains how "bracket creep" is eating up the market share for apartments priced below $1 million.]

Since the Iraq War began, owners of New York's most expensive apartments, those priced at more than $4 million, have seen their market share gain, awaking from their two-year slumber. Sales of these "Upper tier" apartments went on hiatus after 9/11, and our firm
didn't record a single sale in that price range in the fourth quarter
of 2001.

"Middle market" apartments (priced from $1 million to $4 million) gained more market share than Upper tier over the same period; they now account for 33% of all sales after falling to a low of 13% in the
fourth quarter of 2001. This gain came largely at the expense of "Entry level" apartments (priced at less than $1 million). During the same period, they gave up market share, dropping from a record 87% of all sales to just 63%, the lowest level we have recorded.

What gives? Has new development created so many expensive apartments that they are flooding the market?

No. Actually, a large portion of the gains in the share of the Middle market and Upper tier apartments is due to what we call "bracket creep." Much of the upward shift was not due to a change in demographics or quality of construction and amenities, but simply the overall elevation of prices pushing apartments into the next tier. Hence, the bottom segment loses share and the next two categories see gains, as everything moves up.

In appraiser-speak we also refer this phenomenon as "passive-appreciation," but "bracket creep" sure sounds a lot cooler.

Lesson learned: Get a million dollars from that creep.
· Market Strata by Number of Sales [Miller Samuel]
· Three Cents Worth: Manhattan Condos vs. Co-ops [Curbed]