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Three Cents Worth: '13 Was An Anomaly, '14 Will Be Boring

[This week, real estate appraiser, Curbed graph guru, blogger, and podcaster Jonathan Miller examines six years of Manhattan market data.]

Now that the January market report gauntlet is behind me, I thought I'd return to what I really enjoy doing—shoveling snow. I mean, posting Three Cents Worth columns.

Most readers at Curbed have been following the recent market insanity. In this chart, I presented the last six years of market data to illustrate three distinct market periods we have gone through and to guess what the fourth period will be.

4Q07-4Q09: Peak/Collapse
Final moments of housing boom, punctuated by collapse of sales and decline in prices (keep in mind that the drop out of the resale market left new development smoothing over the drop in prices in aggregate). Prices trended from rising 10% to falling 20% in a very short period of time. Inventory initially jumped, then fell sharply as sellers pulled their resales off the market.

4Q09 - 4Q10: Rebound
Sales activity quickly rebounded to near normal in 2010 but due to the severe drop in 2009, they effectively doubled. Priced edged up a little bit as a result of the federal homeowners tax credit but for the most part remained fairly stable.

4Q10 - 4Q13: Activity Anomaly
Despite inventory falling to record lows and the pace of sales growth accelerating, median sales price remained remarkable stable. Why?

Credit remains historically tight and has kept runaway price appreciation from occurring. While we are seeing a handful of very visible trophy sales and more bidding wars than we have seen in years, this market euphoria doesn't seem to apply to all apartments like it did in 2003-2005. I also thing the record low inventory is a bit misleading because we also had record sales activity. In other words, we actually saw inventory climb in 2013, but sales expanded much faster working off the inventory faster than it could enter the market.

4Q13 - 4Q14 Pullback from activity records (More Boring)
Yes we will see some record sales prices close in 2014 that were signed in 2012/2013. However the 2013 record sales surge was probably an anomaly, caused by the release of pent-up demand leading up to the December 31, 2012 fiscal cliff and the spike in mortgage rates last spring. These events pulled a slew of fence-sitters and everyone including their in-laws into the market who were worried about rates expanding further and prices ramping up. Since I see that as a singular event, I don't think 2014 sales volume will repeat this in 2013, and therefore it is more likely that inventory will edge higher, but not rapidly, keeping price growth from getting too frothy.

Then again, if you're anticipating a lot more record setting activity, we can talk about the weather—it looks like there is a lot more snow on the horizon.
· Miller Samuel [official]
· All Three Cents Worth [Curbed]