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Three Cents Worth: Northern Manhattan Has More Swing

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[This week, Curbed's graph guru Jonathan Miller is feeling a bit volatile about emerging housing markets.]

One of the housing trends I have always found most interesting is the greater beta (a Morningstar rating thing that shows whether a stock has more volatility in times of rising value and falling value) in emerging housing markets.

In a market were the value proposition is compelling, prices grow faster as people move out from the core seeking affordability. But when the core markets weaken, the prices in emerging markets prices fall faster.

This can be seen by neighborhoods, regions and housing types. A general example could be the exurb (areas beyond the suburbs) that were more affordable during the housing boom, but the trade off was a longer commute. Those markets are now more vulnerable to sharper price declines because housing with shorter commutes have come down in price.

We also see this in co-ops with a high concentration of rent-regulated tenants. In a rising market, the spread between that type of building configuration and one with 100% owner occupancy shrinks as prices rise, because buyers seek out affordability.

This week I presented the price per square foot of Northern Manhattan (black line) and the price per square foot average of East Side, West and Downtown (gray line), compared to the % change in the spread between them from the prior-year quarter (red columns).

The red vertical lines mark periods of up/down trends in the spread, and they seem to correspond to periods of increased sales activity or frenzied price growth. In those periods, Northern Manhattan would outpace the remainder of Manhattan as measured by an increasing spread, or fall sharply if the other markets were not rising as quickly as before.

I think the conclusion to draw is that emerging markets (lower-priced housing markets that received large demand as a result of their prices relative to core markets during boom times) would be expected to see larger declines than those higher-priced markets during weak periods, especially going forward, as core markets have already showed value declines.
· PPSF Northern Manhattan, PPSF Remainder of Manhattan v. % Change in Spread From Prior Year Quarter [Miller Samuel]
· Previous Three Cents Worth [Curbed]