In real estate, metrics matter

The New York Times recently published several articles on how parts of Brooklyn were now more expensive than Manhattan. However, a closer look at their data shows that the bargain neighborhoods were, in many cases, much more expensive than the Brooklyn alternatives.

Too often, real estate is often discussed in terms of ‘median sales prices’ and ‘average rents’. However, these figures don’t tell the whole story.

For example, when an article describes a neighborhood as having the highest average rent — what does this mean? Are the apartments actually more expensive per square foot, such as the compact apartments in the Village? Or are they comparatively moderately-priced, but have large footprints, so they are more expensive overall?

Without knowing this, it’s impossible to make a meaningful comparison.

Consider two studio apartments that rent for $3,000 a month, one in the Village and the other in the Financial District. While they initially look similar on an absolute dollar basis, they look very different on a per-square-foot basis. The studio in the Village is 300 square feet, while the one in the Financial District in 800 square feet — median prices and per square foot prices tell very different stories.

From the recent New York Times articles, it is true that several Manhattan neighborhoods are more affordable than those in Brooklyn. Even more surprising, some of these neighborhoods are more affordable on both a median sales price and per-square foot basis. Washington Heights ($365,000 median sales price; $722 per square foot) is more affordable than Brooklyn’s Windsor Terrace ($530,000 median; $892 per square foot).

But not all of the comparisons stand up to closer scrutiny.

Gramercy Park (median sales price of $750,000) was presented as a bargain compared to Boerum Hill ($911,772). However, residences in Gramercy are $1,707 per square foot compared to Boerum Hill’s $936. In other words, almost twice as expensive.

Similarly, the Lower East Side (median sales price of $582,500) was positioned as a more affordable alternative to Williamsburg (median of $875,000). But apartments in the Lower East Side sell for $1,540 per square foot compared to $672 for Williamsburg — in this case, well over twice as expensive.

This analysis highlights that the median sales prices for a neighborhood can be misleading.

Median sales prices reflect what are currently being sold in each market. There are many reasons why Gramercy Park may have a lower median sales price than Boerum Hill. Perhaps there are more studios and one-bedrooms being sold in Gramercy Park. Or perhaps new developments in Boerum Hill are skewing larger. In any case, median sales often rise and fall from month to month for reasons often divorced from the underlying price per square foot. Perhaps a building with a large number of units has come to market. To get a truly meaningful comparison of neighborhood prices, one must look at both median sales prices and prices per square foot.

Neighborhood ……….………. Median Price …… Price per square foot*

Windsor Terrace ……………… $530,000 …………. $891
Washington Heights ………... $365,000 ………… $722

Downtown Brooklyn ……….. $809,000 ………… $1,012
Harlem …………………………….. $666,000 ………… $758 (East Harlem)

Williamsburg ………………….. $875,000 …………. $672
Lower East Side ………………. $582,500 ………….. $1,540

Boerum Hill …………………….. $911,772 …………… $936
Gramercy ………………………… $750,000 …………. $1,707

Brooklyn Heights ……………. $600,000 ………… $965
Hamilton Heights …………… $469,000 …………. $830

Data from Trulia, May 15, 2015

Constantine A. Valhouli is the co-founder of NeighborhoodX, a site that offers neighborhood-level reports to complement property-level data and individual property listings. This op-ed was originally excerpted in Capital New York’s Real Estate Roundup.