Aug. 7, 2006 - Lofts again out-perform the market / Miller Samuel 2Q 06 report
Overall, a buyer’s market with stubborn sellers
The overall Manhattan market in the second quarter reflected two clear trends toward a market in transition, according to appraisal firm Miller Samuel: on the one hand all price indicators were up; on the other hand, inventory continues to increase as the number of transactions declines and the average days on market increasing.
But the loft sub-market showed significant relative strength, with inventory essentially flat and average days on market up, but better than the overall market.
As always, there is a lot to digest in the Miller Samuel data. Jonathan Miller selected the following as the key excerpt about the stand-off between buyers and sellers evident in the second quarter, in his blog Matrix:
…The phenomenon of rising prices and declining sales is a classic sign of a market in transition. The market has entered a period where the sellers no longer have a clear advantage in the typical sales transaction. Buyers were expecting a deep discount on all transactions while sellers remained fairly firm in their pricing. As a result, the number of sales dropped as the buyers who were resistant to rising prices simply chose not to participate, while those who stayed in the market paid record prices on average. The modest uptick in mortgage rates since the beginning of the year tempered demand as both existing and new development inventory was rising. While inventory levels are the highest they have been in ten years, the selection for buyers has not improved as much as the inventory numbers would suggest as sellers have not yet responded to the weaker demand. There is still a substantial portion of listings that are priced as if the market was seeing double-digit annual appreciation that occurred over the past several years. As a result, it is taking longer to sell an apartment and there is generally more negotiability…
I also think it noteworthy that Miller found that coop “entry level units” (one bedrooms and studios) lost market share to sales of larger apartments in the quarter, compared to last year (52% vs., 57%), and were the only market segment with lower prices year-over-year. This suggests that first time coop buyers may be getting squeezed out of the market.
Condos ‘lead’ the market, softer and softer
The impact on the market of the continuing stream of new condominium offerings is evident in several ways. First, there were more condominiums sold in the second quarter than coops, for the second consecutive time. Second, while the overall inventory is up 54% year-over-year, that increase is disproportionately from condos: coop inventory is up 30.8% but condo inventory is nearly double the prior year’s inventory (up 93.5%). Third, Miller estimates that the roughly 60% of the increase in condo inventory is from new developments. Finally, condos took longer to sell in this quarter than coops (149 days on the market, compared to 138 for coops).
A tentative (not bold) prediction
I suspect that with the pipeline of new condominium projects remaining robust, each of these trends should continue for the rest of 2006 – unless developers begin to price new condos lower, in which case it is likely that overall market price indicators will fall.
Relative strength in lofts / higher prices, flat sales and inventory
The number of loft transactions in this quarter was essentially the same as the prior year’s quarter (218, down from 221), compared to the 14.8% year-over-year decline in transactions in the market overall.
Loft inventory was up modestly year-over-year (376 units this quarter, 361 lofts for sale last year), compared to the 54% general inventory increase in the overall market.
And loft prices per square foot were higher than for condos generally, or for coops generally (at $1,170 for lofts, $1,149 for condos, and $968 for coops) – which is remarkably strong (to me), as my guess is that most loft sales continue to be in coops rather than in condos.
The Miller Samuel report came out last week, while I was enjoying moderate temperatures and sea breezes in Maine and Canada, so I have not yet had the opportunity to see how the media has spun the data. We’ll see….
© Sandy Mattingly 2006
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