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Three Cents Worth: The Upper End Up and Left

[This week, our market analyst Jonathan Miller returns with a look at the widening price gap between big apartments and everything else. Click on the image to expand.]

One of the characteristics of the current market has been the heated performance of the upper price range of Manhattan co-ops and condos. The upper end has been characterized by sharply rising prices and a lack of inventory. In my latest market report (2Q 2007) the average sales price of a 3- and 4-bedroom apartment increased 17.6% and 36.2% respectively as compared to the prior year quarter while studios, 1-bedrooms and 2-bedrooms over the same period changed +/- 2%. This week I decided to plot the dollar difference between the cpi-adjusted average sales price of the upper end of the market and the remainder of the market.

The remainder, or majority of the market, defined as studios, 1-bedrooms and 2-bedrooms, comprised 94% of the market this quarter. The upper end of the market, defined as 3-bedroom and 4-bedroom apartments, comprised 6% of the market this quarter. Both segments were weighted by their number of transactions. The purple line shows the dollar difference between the two groups after adjusting for inflation. The blue bars show the general steps over time.

I wanted to illustrate whether or not the gap is widening. This chart shows that it is. The upper end of the market, in terms of dollars, has been moving away from the remainder of the market for the past decade. What I found interesting, and I don't have an answer for, is why the spread seems to increase in steps rather than as a gradual change?
· CPI-Adjusted Average Sales Price Spread [Miller Samuel]