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Three Cents Worth: Tracking the Changes In Manhattan Apartment Sizes

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Real estate guru Jonathan Miller is back with a column about the size of Manhattan apartments

After a year 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 the relationship between the average square footage of sold Manhattan apartments and real estate cycles.

This week I thought I’d look back a few decades to trend the average size of sold Manhattan apartments by quarter. The average square footage of Manhattan apartments that sold in the most recent quarter was 1,198, so I thought I’d pay more attention to quarters that had lower average sales sizes (In the graph below, this is the dotted green line). Between the second and third quarters of 2015, there was a severe drop in average sales size. That's also about when the super luxury market (sales north of $5 million) largely went quiet.

In 3Q15, the average sales size of a Manhattan apartment was 1,161 square feet, 16.9 percent less than the earlier quarter's average square footage of 1,397. This was the largest quarter over quarter drop in average square footage of the past 20 years. The second highest drop was the 13.9 percent decline observed exactly 10 years before.

I remember that 2005 period distinctly, because the high-end market went dormant for the rest of the year. Consumers were frozen by the conventional wisdom that mortgage rates would soon spike to 7 percent (which never happened.) There was a big pause in the market for the remainder of that year as consumers grappled with future scenarios.

This was also the period for U.S. housing where sales began to fall. By 2005 lenders had dropped mortgage standards completely and rising prices could no longer be engineered for affordability. U.S. housing prices wouldn’t peak for another year until the summer of 2006. However, Manhattan’s price peak was pushed forward two years to 2008 as Wall Street enjoyed record bonuses that extended the boom.

Fast forward to today. This development boom has had little to do with leverage or the credit standard engineering seen in the prior boom, especially given the emphasis on super luxury new development and cash buyers. Therefore the drop in super luxury sales has more to do with sellers recognizing that a price correction already occurred.

I think many super luxury buyers are still around, they’re just not willing to pay prices set several years ago.