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Three Cents Worth: Manhattan Hits Bottom (In Unit Size)

[This week, real estate appraiser, Curbed graph guru, blogger, and podcaster Jonathan Miller explores the mortgage rate-apartment size relationship.]

With all the hoopla about record low mortgage rates, the resurgence of entry-level buyers despite the headline-creating high end market, entering the "gray" area of rent versus buy, I thought I'd take a look at how falling mortgage rates impact the size of apartments being sold. The logic being that smaller apartments thrive as rates fall. I recognize that there is a lot more nuance in the size of what sells at any given time, but hey, this is Curbed.

I plotted the last 20-years of apartment sales history and matched it against the 30-year fixed conforming mortgage rate. I've never compared the two in this fashion before. While I've always seen the entry-level market respond more quickly to changes in mortgage rates, I was struck by the similarity of their trends over the past two decades...until the credit crunch begins.

Takeaways:

· Mortgage rates have been trending lower for two decades as have aggregate average apartment sizes.
· The dotcom boom era and the current credit crunch era have seen some of the largest averaged sized apartments sales (the '92-'93 was more about low end dropping out from high mortgage rates).
· Once the credit crunch era begins three years ago, the similarity clearly ends.

While mortgage rates continue to fall, apartment sale sizes (square feet) move sideways (admittedly erratic) as the high-end surge offsets the entry-level expansion.

I'm not sure what to draw from the divergence of interest rates and square footage during the credit crunch other than perhaps:

· Low mortgage rates have been over-relied on.
· When credit is dysfunctional, housing patterns become less reliable.
· We need the name "Fig" put back in "Fig Newtons."
· The average size of an apartment can only be so small.

· Matrix [matrix.millersamuel.com]
· Three Cents Worth archive [Curbed]