Now that the consensus seems to be that Manhattan experienced a price point specific down-cycle that bottomed out somewhere in early 2016, lets break it down by property type and take another look at how Co-ops fared vs Condos.
Generally speaking, condos will reflect the severity of down cycles more than the co-op sector will. Some reasons include:
- Speculative investors / 2nd home buyers tend to purchase condos
- Condos have a ‘Right of first refusal’ purchasing process while Co-ops have a full ‘Board review’ process usually with minimum financial purchasing requirements
- Co-ops may reject a deal if the purchase price may ‘adversely’ affect other shareholders
All of which will lead to a condo marketplace revealing truer price discovery when weakness hits as those that are forced to sell hit the only bids available at the time with no interference from the building.
One great way we can measure the “severity” of any downturn is Days on Market, a realtime metric you can find here on UrbanDigs. Days on market is measured using the Pending sales subset and looking at the median time it takes to go from original listing to contract signed. The spread between Days on Market for Coops and Days on Market for Condos can guide us to a shift, or dislocation in either market as it occurs in realtime. The logic goes:
When DOM rises & spread widens –> The market is weakening, deteriorating
When DOM falls & spread narrows –> The market is stabilizing, rising
Look, I’ll show you what I mean – Manhattan Days on Market | Condos vs Co-ops:
Days on market is hyper-local to neighborhoods, price points, and property types – so what’s happening in the Tribeca condo sector is very different than what is going on in the Upper West Side co-op market.
Here is a quick peek of Manhattan Median Sales Price Trends | Condos vs Co-ops:
A 3rd method is Absorption Rate Charts | Condos vs Co-ops that Pro Subscribers can access and shows a similar trend to that of Days on Market – declining, narrowing spreads peaking in early 2014 follows by rising, widening spreads to today.
Bottom Line: Yes, the co-op market is more stable than the condo market. I am sure there is a whole subset of buyers out there that will prefer this type of stability when it comes to purchasing property. There are a variety of reasons why this is the case ranging from the type of buyer, the type of product, and external forces that affect both. Put simply, the co-op market is a lower risk and lower reward play versus the condo marketplace. Property attributes will ultimately define whether your property follows the baseline trend so always be sure to bid up for the ‘bones’, the features of the property that carry the most value and that you can not change; ie, location, view, size, outdoor space, etc..
More analysis to come…