Is the market in crisis? Well, there is evidence from the nasty month of March to suggest that the big project boom may have reached a symbolic turning point in the 31 days that just concluded. Before we get to that, however, we will turn to the Luxury Letter, which expresses confidence about "a normal market, not too affected by the unbelievable turmoil on Wall Street":

Pricing is stable. On the very high end there appears to be some weakening, but it remains to be seen if this is a result of the quality of product trading (and available) or a trend. Most of the ‘price reductions’ one hears about are ASKING price reductions. While that certainly indicates the end of a rising market, it does not necessarily show pricing deflation.

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Oh my! Speaking at Reuters' Housing Summit, Pam Liebman—Corcoran Group CEO and the gentle, reassuring voice that always calms us down when things threaten to go off the rails—made some interesting statements about the path of the New York housing market in 2008 and beyond. Brace:

"If Wall Street has a terrible year, and the press is really talking negative about the economy and the election, I think things could really slow down at the end of the year," she said.

"I don't see New York City crashing or coming to any kind of a standstill, because the product is too good and there's too much belief in the city," Liebman continued. "What will stall this market is a negative economy, nervousness and skittishness about job security, consumer spending, layoffs, and sellers with unrealistic prices."

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[This week, our graph guru Jonathan Miller takes on the hot topic of shrinkage.]

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The average square-footage of a Manhattan co-op/condo apartment in the fourth quarter of 2007 was 1,220 square feet, down 5.7% from the 1,289 square feet average of a decade ago. However, the spread between co-ops and condos has also declined over the same period.

In 4Q 2007, the average size of a co-op apartment was 1,083 square feet and the average size of a condo apartment was 1,336 square feet. Since new development activity is nearly all condo, the co-op housing stock is essentially static. It's a widespread perception that the average size of a Manhattan apartment is rising (probably because prices continue to rise), but that is not the trend.

Condo sizes have fallen more than co-ops since the market peak in 1999-2000. During the dotcom-infused real estate market surge in 1999-2000 (which saw a larger jump in prices than the housing boom peak of 2004-2005), condo sizes grew rapidly. However, this trend was overplayed, and by 2002, the size of condo units began to fall.
· Manhattan Average Co-op/Condo Square Foot Trend [Miller Samuel]

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1) More lawsuits are coming out of the Ansonia, the stately Upper West Side condo buildings where a "biblical-type explosion of roaches" caused actor Alan Arkin to sue the building's management last year. This time around, a couple is suing their fourth-floor neighbor over cigarette smoke. The fight is getting dirty, with one of the nonsmokers alleging that Puffy encourages her chihuahua ("Bobo") to urinate on their kid's stroller. ['Suing the Smoker Next Door'/Anemona Hartocollis]

2) The January numbers are in, and Manhattan prices were again pushed to the highest levels yet, but take away 15 Central Park West and the results weren't so astonishing. The number of closings was pretty flat, and the median price was about $857,000, slightly above last quarter's median but below the summer's level. [Big Deal/Josh Barbanel]

3) In this edition of "Living In," the curtain is pulled back and the East Village is revealed as an edge-less snoresville where moms push strollers through Tompkins Square Park and studios average $2,000/month. And this surprises...? [Living In/Gregory Beyer]

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[This week, our graph guru Jonathan Miller on what it takes to have a good amount of absorption (Bounty not included).]

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Market Velocity, the term I dubbed the aggregate of all sales price sold during a given period, and Market Absorption, the number of months it would take to sell off the current level of inventory at the current pace of sales, are indicators I haven't gotten around to comparing side by side.

I was surprised by the closeness of the correlation, but I guess it's pretty logical. When looking at the summer of 2006, inventory was bloated, and that was a result of a slowdown in the number of sales, causing absorption to double. During that period, the number of sales flattened out. By early 2007, sales activity spiked, dropping the absorption level to four months, the lowest in recent history.

The big question going forward is whether or not sales activity is going to continue at the same pace of last year even with declining mortgage rates, the falling dollar and bonus income only 2% below the prior year. With the credit situation not likely to improve soon (that's why the Fed is dropping rates), I don't see how the absorption can improve this year.
· Manhattan Co-op/Condo Market Velocity and Absorption [Miller-Samuel]

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To some, it would appear that the luxury Manhattan market is in crisis mode. OMG, Blavatnik pulled out of his $150 million deal at The Mark and flippers at The Plaza recently cut prices! Total. Chaos. Luckily, at the very same moment we're left questioning the luxury market's ability to wow us in 2008, along comes the Luxury Loft team and their February Luxury Letter to provide some analysis. In his introductory comments, team co-leader Leonard Steinberg paints a sort of mixed bag:

The most significant indicator, the number of buyers, is very strong. On some premium, highly desirable properties there were multiple bids....but only if they were priced exactly where the market is, or below market. A few areas appear to have an over-supply of inventory, but the super-luxury market is balanced, and there are shortages of certain classifications in certain areas. Open houses are very well attended, and familiar faces of those buyers that have been on the fence keep mounting.

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1) If there is one real estate lesson to be taken from the monumental upset of the undefeated and unstoppable Patriots, it's that, hey, maybe the Manhattan market isn't so untouchable after all! Can a football game affect market confidence? Maybe. The bad news has already started to trickle out, so anything can trigger the snowball effect. ['Home Prices Start to Dip, Recalling ’90s Slump'/Patrick McGeehan]

2) New York's arcane tax laws result in some fairly wacky assessments, partly because storied co-ops are categorized the same as run-down old buildings. This is good news for Rupert Murdoch ($55,000 in annual taxes on his $44 million apartment) and bad news for David Martinez ($442,000 for his Time Warner Center duplex). ['Who Pays the Most Taxes'/Josh Barbanel]

3) A thorough breakdown of the South Williamsburg neighborhood introduces us to Julia Warr and Martin Brierley, a couple of British artists who relocated to the area with their three children and are about one my-boy-got-beat-up-by-some-Spanish-kids away from hopping a plane back to South Kensington. [Living In/Jake Mooney]

4) How does Sky View Parc, a massive 14-acre development in Flushing with luxury condos and a mall, differ from other massive Queens developments like Queens West or LeFrak City? This one is being paid for by all private money. And it has a Home Depot! [Posting/C.J. Hughes]

5) Think Park Slope is going through a baby boom? Then you really to check out Crown Heights, where Lubavitchers are mating like mad and building condos like they're going out of style. [The City/Alex Mindlin]

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[In this week's 3CW, graph guru Jonathan Miller gives us his State of the Inventory address.]

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Over the past year, condo inventory levels have exceeded co-op levels as new developments (nearly all condo) continue to enter the housing stock at a steady clip. Residential development permits dropped sharply in 2007 and the expiration of the 421a abatement program on June 30th may choke off the high level of supply entering the market in 2009. So far, the elevated level of demand has kept inventory at modest to low levels.

The total number of listings has increased 9.9% from the end of December 2007 to the End of January 2008 (yesterday). Inventory tends to rise at the beginning of the year as sellers anticipate the upcoming spring market. The same period in four of the past five years has seen an increase in the number of listings:

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[Our graph guru Jonathan Miller has returned! While he's been away, JM has been preparing quarterly and year-end reports, getting quoted in every publication on Earth and planting the seeds that will one day sprout as 3CW mindgrapes. First up: why the luxury market is fudging things up.]

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I compared the change in inflation-adjusted median sales price from the prior year quarter to current for both the overall Manhattan co-op/condo market and the luxury market. Because the luxury market in this analysis represents the upper 10% of all sales, its trend line shows more volatility than the overall market partially because of sample size. I don't think luxury prices are a leading or trailing indicator; they simply represent a different market that, up until today, has benefited more from the weak dollar, Wall Street bonus income and corporate profits than the remainder of the market.

Luxury Market — Besides being the most over used word in real estate after "location", the "luxury" market has not always been in sync with the overall market. This has been the case for the past 2 1/2 years. In mid-2005 through the first half of 2007, the change in its median price was less volatile than in the prior few years, staying closer to
0%, but clearly showed more weakness than strength in the pace of growth in median sales price. However, the second half of 2007 saw a sharp increase in median price, far outpacing the overall market and causing many to think the overall market was rising sharply as well. It isn't.

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