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What's it all about? Real story behind 3Q numbers.

We released the third-quarter Prudential Douglas Elliman Manhattan Market Overwiew on October 4, 2005.

It received widespread media coverage, but the data from the report was interpreted in different ways.

Afterwards, I received many inquiries about the state of the market from real estate brokers, wall street firms, and lenders to interpret the statistics in the report that were discussed in the media.

I thought the most interesting part was how much coverage was given to the average sales price statistic, which should not be considered on its own without explanation.

So that everyone in the industry has the benefit of understanding the numbers, here's a quick list of the highlights of the current market that are most useful:

* The average price per square foot set an all-time record reaching $984 per square foot and rising 1.4% from the prior quarter.

This is the telling statistic. The overall market increased this quarter, but not at the same torrid pace as before.

The rate of appreciation has eased. In fact, since larger apartments generally sell for more on a per square foot basis than smaller apartments, one could make the argument that the shift in unit mix also tempered this indicator as well.

* There was a significant shift in the mix of apartments that were sold. The average sales price dropped 12.7% because the market share of entry-level apartments (studio and 1-bedrooms) spiked 5% and activity at the upper end dropped off.

* Entry-level sales surged because of concerns over modest increases in mortgage rates are expected. Of course, this has been the speculation since mid 2003 but this time, with rising fuel prices, comments about the Federal Reserve about housing, mortgage rates may actually rise.

* High-end sales activity eased rather than prices dropped. The luxury market average sales price dropped 26% from last quarter because fewer sales at the upper end occurred.

There were 17 sales at or above $10M in the 2nd quarter and only 4 sales at or above $10M tracked in the 3rd quarter. In fact, a high-end broker contacted me to say there were 5 such sales this quarter, but didn't realize that one of them closed in the prior quarter.

Nevertheless, whether 4 or 5, the sales activity was well below 17 sales. This doesn't indicate that prices collapsed, but rather a shift in the mix of apartments that sold in the upper 10% of the market.

* Inventory did increase this quarter and was more heavily weighted with condos than co-ops. Since inventory came on at generally the same pace as the number of sales eased, inventory built up.

This was attributable to seasonal considerations and bad economic news, rising gasoline prices, saturation of bubble speak for the past 6 months and negative economic news relating to the 2 hurricanes.

* There are expectations of record Wall Street bonuses due to the good year seen by investment bankers and a number of other sectors in the financial district.

Historically, Wall Street bonus income has flowed through the real estate economy after the New Year.

BY JONATHAN J. MILLER

PRESIDENT/CEO, MILLER SAMUEL INC.
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Author:Miller, Jonathan J.
Publication:Real Estate Weekly
Geographic Code:1USA
Date:Nov 23, 2005
Words:518
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