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Three Cents Worth: Luxury Market Disconnect

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[Our graph guru Jonathan Miller has returned! While he's been away, JM has been preparing quarterly and year-end reports, getting quoted in every publication on Earth and planting the seeds that will one day sprout as 3CW mindgrapes. First up: why the luxury market is fudging things up.]

[Click to expand.]

I compared the change in inflation-adjusted median sales price from the prior year quarter to current for both the overall Manhattan co-op/condo market and the luxury market. Because the luxury market in this analysis represents the upper 10% of all sales, its trend line shows more volatility than the overall market partially because of sample size. I don't think luxury prices are a leading or trailing indicator; they simply represent a different market that, up until today, has benefited more from the weak dollar, Wall Street bonus income and corporate profits than the remainder of the market.

Luxury Market — Besides being the most over used word in real estate after "location", the "luxury" market has not always been in sync with the overall market. This has been the case for the past 2 1/2 years. In mid-2005 through the first half of 2007, the change in its median price was less volatile than in the prior few years, staying closer to
0%, but clearly showed more weakness than strength in the pace of growth in median sales price. However, the second half of 2007 saw a sharp increase in median price, far outpacing the overall market and causing many to think the overall market was rising sharply as well. It isn't.

Overall Market — After the pace of growth peaked in 2004, the increase in median sales price remained significant through the end of 2006. The adjustment for inflation showed the median price having modest gains in 2006, but the pace of growth slowed from 10.1% in the first quarter to 1.5% in the fourth quarter. In 2007, the adjusted median price change from the prior year quarter showed a 3.2% decline in the first quarter to 1.5% decline by the end of the year, a slight improvement.

In much of the market commentary I have read, the strength of the market, as evidenced by these numbers, is more modest than has been generally characterized. There is a disconnect between the luxury market and everything else.
· Manhattan Luxury versus Overall Co-op/Condo Market [Miller-Samuel]