The Co-op vs. Condo Scale is Tipping: Towards Balance?

Jonathan Miller is at it again with his incredibly adept knack of deciphering numbers and explaining the NYC housing market. Check out his latest fancy chart. On Curbed he explains it this way:

This week I present the quarterly average price per square foot of Manhattan co-ops and condos (adjusted for inflation) over the past 10 years. For both the first and last quarters of the time series, I inserted a pie chart illustrating the market share of co-ops and condos that sold in that particular quarter, based on the number of sales.

Not surprisingly, the average price per square foot for both co-ops and condos showed an upward trend over the decade. However, the condo market, after adjusting for inflation, slipped 2.3% since 2Q 2005, arguably the point where the housing boom ended in New York. The inflation-adjusted appreciation rate 2Q 2004 to 2Q 2005 for condos was 18.5%. Co-ops faired better since 2Q 2005, rising 6% after adjusting for inflation. This was less than the 20.6% appreciation pace for co-ops seen in the previous year (2Q 2004 to 2Q 2005). Since these are overall market numbers, they are affected by the mix of what actually sold, but they do illustrate the change we are all seeing.

At the beginning of this time-series, in 1996, 59% of the apartments sold were co-ops compared to 41% condos. By the end of the time series in 2006, condos represented 57% of the number of sales to 43% of the co-ops. In the near term, we don’t expect condos to outsell co-ops every quarter, but the pace of new development is changing the housing stock. In 1996, the ratio of co-ops to condos in the housing stock (existing housing units, not number of sales) was approximately 80/20, while the 2006 ratio is about 75/25.

New York has long been a hard-core co-op town. In the big picture, as Miller documents, that trend is waning  somewhat. But on the street today? I can tell you that co-ops are attractive to many buyers at the moment. I believe the condominium development boom, paired with prices of new development projects has given greater appeal to the co-op market in the short term possibly explaining the slip in condo prices (after adjusting for inflation) since 2Q 2005. To many buyers, co-ops are a little more attractive for the moment because they are less expensive alternatives to all those starchitect buildings.

That said, in the long run as condominium inventory increases, I believe the premium paid for condo ownership will decrease, and the major difference between condos and co-ops will be one of legal ownership and not price. We also can’t ignore that co-op transactions are now public domain and may in fact be subject to mortgage recording tax in the near future. It will be interesting to see if these factors, combined with the increase in condominium inventory expected over the next 18-24 months, will further close the gap between condo and co-op inventory and prices. Only time will tell.