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Three Cents Worth: Studios Are The Market Heavyweights

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[This week, real estate appraiser, Curbed graph guru, blogger, and podcaster Jonathan Miller turns his attention to the humble studio.]

It's been a while since I was needlessly wonky so please be patient with me, but with all the attention lavished on trophy properties and the weakness/strength of the US dollar, I thought I'd take a look at the strength of studio apartment pricing relative to 4-bedroom apartment pricing in Manhattan?one end of the price spectrum versus another.

To do this I divided the median sales price of a 4-bedroom apartment by the median sales price of a studio to came up with this ratio. I haven't thought of a catchy name for it yet (working title: "4-bedroom/studio median sales price ratio"). Another way to think of this ratio is like a conversion of US dollars into some other currency. It goes like this: "How many studio apartment purchases would it take to equal one 4-bedroom apartment purchase?" I used median sales price in this ratio to remove outliers (i.e. $88M, $70M, $52.5M, etc.).

The thin blue line with a lot of volatility is the quarterly 4-bedroom/studio median sales price ratio. To make it easier to follow, I created a 1-year moving average (magenta line) and inserted the last three recessions and a series of milestones that seemed to change the ratio. Clearly, record low mortgage rates have helped invigorate the studio market like they did a decade ago, bringing the ratio lower. Higher-priced studios and stable 4-bedroom pricing have helped the ratio fall since Lehman. The mid-1990s birth of the mainstream loft market was eye-opening to me. Although we did a lot of loft appraisals in the 80's, it wasn't until the 90s that it became a widely recognized property category that accounts for nearly 10 percent of all Manhattan sales now.

So despite the record trophy sales activity we've all been reading about and strength at the high end of market in general, this wonky ratio is currently at its lowest rate in more than 20 years?in other words, the fewest number of studio apartments are required to purchase a single 4-bedroom apartment since the movie "Field of Dreams" was a box office hit?except this isn't Iowa.

The idea that Manhattan is the exclusive domain of large apartments simply isn't true, and over time, studios have narrowed the gap ever so slightly.
· Matrix [matrix.millersamuel.com]
· Three Cents Worth archive [Curbed]