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Three Cents Worth: Peeling Manhattan to Its Re-Sale Core

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[This week, real estate appraiser, Curbed graph guru, blogger, and podcaster Jonathan Miller wants to repress the memory of those new condos.]

One of my preferred ways to understand trends of a housing market is to remove new development from the picture. I see it as turning off your smartphone so you can concentrate, er, checking my messages, hang on, ok I'm back. New development sales trends are subject to the mix of what was recently constructed and closings are randomly dependent on when construction is completed. In markets like Manhattan, they can really skew the overall stats (think a few years back with the havoc caused by high-end closings at The Plaza and 15 CPW).

This chart looks at Manhattan re-sale activity (the market revealed without new development sales) by price per square foot (pink line) and number of sales (teal columns). I think it paints a good visual of how we should think about trends over the recent past.

Peak to Trough
· Number of Sales saw a 75.1 percent drop?market peak for sales was 3Q 07 with 2,743 sales and the market trough was 1Q 09 was 683.

· Price Per Square Foot saw a 33.5 percent drop?market peak for ppsf was 2Q 08 at $1,443 and the market trough was 3Q 09 was $960.

Credit Crunch Era
· Number of sales has hovered around 2,000 units for nearly 3 years and seasonality is becoming more pronounced.

· Price per square foot has showed remarkable stability for the past 3 years as well.

Longer Term Lookback
The 2004 to 2006 plunge in sales as prices continued to ramp up was the period we are all paying for now. That three-year window was the period where lending standards evaporated to keep the mortgage pipeline full. Incidentally, June 2004 was when the Fed started to ratchet up their key rate, which marked the beginning of the end of the bubble which marked the beginning of the steep slide in underwriting standards. Many major housing markets (and the US in aggregate) saw the end of their bull market in 2006. Not Manhattan. A surge of new development closings, record Wall Street Bonuses and surge of foreign buyer demand (think Irish) extended the housing party until 2008.

Future
Aside from the super high-end trophy sales we've been reading about, prices and sales have remained remarkably stable for the past few years despite a crummy economy, Europe, and tight credit but with record low mortgage rates. The conditions driving these factors aren't expected to change much over the next year so I'm thinking we may see more of the same for a while.

One big question mark that remains this year is the "fiscal cliff" being talked about in Washington. The Bush tax cuts are expiring at the end of the year and the first federal stimulus payment is due in early 2013. We may see the wealthy who are on the fence about selling do so before December 31 and avoid the 5 percent increase in capital gains if the cuts expire. As for the increase in federal debt, housing markets hate uncertainty and this may deliver a slower start to 2013 as well.
· Matrix [matrix.millersamuel.com]
· Three Cents Worth archive [Curbed]