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Three Cents Worth: How Inflation Really Affects Manhattan Sales Prices

Real estate guru Jonathan Miller is back with a column about the reality of inflation in Manhattan

After a couple of years off, Curbed's column Three Cents Worth makes its triumphant return! This week, real estate appraiser, Curbed graph guru, blogger, and Housing Notes newsletter writer Jonathan Miller looks at inflation in the Manhattan sales market.

I wanted to get in touch with our inflated sense of Manhattan real estate. Admittedly, it has been a confusing year with a slowdown in super luxury condo sales with lots of new product slated to enter the market. New development prices are skewing everything higher because many of the units closing now sold one or two years ago. The resale market is seeing more inventory come to the market but it remains choppy, with some markets (like high-end Park Avenue) nearly stalling.

Inflation is something not consistently applied to housing results in many forms. Ironic, because it is touted as a good hedge against inflation, although Robert Shiller would disagree. What is missing from Shiller’s discussion is the use of leverage—that is, how you can hedge against inflation.

In our market reports, I’ve always preferred providing a raw benchmark and then the user can do whatever they want to the results. We could also adjust for seasonality, but I prefer relying on year over year comparisons for that. In the appraisal business, experience teaches you that the less adjustments made to a comparable sale, the more, well, comparable it is. But I digress.…

This week, I thought I would compare Manhattan inflation-adjusted (real) results to reported results at the time (nominal) to compare current conditions to the pre-Lehman median sales price high in 2Q08.

Manhattan New Development + Resales (Overall Market)

The overall market cracked the pre-Lehman Manhattan record set in 2Q08 of $1,025,000 back in the fourth quarter of 2015. If we adjusted for inflation, the median sales price in 1Q16 remains 8.7 percent below the 2Q08 record.

Manhattan New Development

The 1Q16 median sales price of $2,606,720 is an all time record, sharply above any pre-Lehman inflation adjusted high. That’s because the product type for new development morphed into super luxury product often in supertalls that Manhattan has never seen before. However, the reality here is that this number represents the new development market in late 2014 when all these units went to contract.

Manhattan Resales

This chart represents reality because it doesn’t have the time lag that the new development market has. Resale co-op and condo prices in aggregate were 23.6 percent below the inflation adjusted peak of $1,176,133 in 2Q08. In other words, resale apartment prices are nowhere near the intensity of the pre-Lehman bubble. Then why does it feel that way? Flat wages have a lot to do with that feeling.