CompsWatch: Is the market for smaller apartments in trouble?

The end-of-year Manhattan real estate sales reports issued this week, along with the media response (both conveniently compiled by CurbedNY here), were a bit discombobulating. Sales volume was indisputably down, sales prices were up year-over-year and down from the third quarter, and--depending on the source--the overall market itself was stable, flat, up or down.

As appraiser Jonathan Miller explained to CurbedNY, the increase in median sales price was not the result of increased prices, but rather due to a decrease in the number of studios and one-bedroom units sold. A greater percentage of large-unit sales caused the increase in prices.

So what gives with the market for studios and one-bedrooms?

People who buy small apartments come in many configurations: pied-a-terre, first-time buyers, empty nesters, students, singles, and couples without children. For many, the smaller unit does not represent a lifetime commitment, and at some point many who have purchased a studio or one bedroom wish to trade up for larger digs.

If sales of smaller units becomes more difficult (and it's worth noting that in a past major correction it became nearly impossible to sell studios), the bottleneck can cause prices to fall as those who need to sell (think divorce, death, birth, relocation) must do so at any cost.

While we have not noticed any sort of apocalypse in the resale market for smaller units, the following apartments are indicative of some of the trends we have been spotting. 

• At Manchester House, an Emory Roth-designed pre-war co-op building located at 145 West 79th Street (between Columbus and Amsterdam), Apartment 9C closed in December for $485,000. This broker-owned one-bedroom was purchased in April 2005 for $570,000, 15% more than the last, recent sales price. Originally listed for $549,000 in 2009, it was relisted higher in March 2010 at $579,000. The listing notes a gut renovation, although it is not clear if that was undertaken by the sellers. 
• At the development formerly known as Miraval, 515 East 72nd Street (between First and York), this FSBO resale is a cautionary tale. The one-bedroom sold in February 2008 for $826,878 and closed last month for $585,000, an almost 30% decline. The building has had its difficulties, but even more problematic may have been the near doubling of real estate taxes between the two sales. While purchasers of larger units--specifically, families with school-aged children--may view taxes as at least partially paying for public schools, purchasers of smaller units may be more averse to increased taxes. As taxes increase according to abatement schedules, smaller condo unit resales may be more affected.
•  This co-op studio at Nevada Towers, 2025 Broadway (at 68th Street), was listed at $260,000 in September and was in contract in little over a month, closing in December at asking price. The high maintenance, $1,009/monthly for a 400-450 square foot studio, was overcome by a low price, about 4% less than the $275,000 9G, four floors higher, commanded in January of 2005.
• At first glance the sellers of 24J at Brevard in Sutton Place did not do so badly. The studio coop was purchased in October 2006 for $337,000 and was sold in December 2010 for $370,000. Between sales, however, it appears that extensive renovations were done, likely costing well more than the $33,000 price differential. Owners of small units need to be mindful that renovation costs, especially higher-end, are less likely to be recouped, as the total expense becomes a larger percentage of the total price of the unit.