Month: January 2017

1. Neighborhood Options-There are so many neighborhood options in the rental market that have gained traction. From Bed-Stuy and Bushwick, to Crown Heights and Greenpoint. While outside of Brooklyn, Jackson Heights, Long Island City and Jersey City have become increasingly popular options.
2. Increase of Supply- Over 11,000 new apartments hit the market last year and another 13,000 are expected this year. When rents climbed in the years after the last recession, there were very few options for new rentals in the market. On the high-end of rentals, a lot of new product that was marked for condos changed to rentals with the softness in the luxury sales market.
3. New York City Unemployment- As rents climbed each year after the last financial crisis, the New York City unemployment rate continued to decrease. According to the New York City Department of Labor, the seasonally adjusted unemployment rate decreased every year from 2012 to 2015, but in 2016 this rate was flat. Job transfers to NYC and people moving from other cities used to be a frequent occurrence, but this type of renter is uncommon these days.

When does this end?

Not anytime soon. Interest rates would have to rise by more than a few increases to swing more potential buyers back to the rental market. More rental supply will be common throughout 2017. Since 421-A (a program that reduced property taxes for developers) expired in January 2016, new rental development has been stopped, but it will take a few years until this is felt in the market.

 

1. The sales market will have a very active 2^nd quarter as sellers act more pragmatic and buyers want to lock in rates before the three federal reserve policy meetings. This will be evident in the number of properties that sell at or above the listing price.
2. March active sales inventory numbers will be up from 2015. A lot of sellers held off or took the apartment off the market in fall of 2016 and will want to get a head start on the spring competition.
3. The luxury rental market ($6500 and up) will continue to struggle. Many apartment owners and landlords will struggle to get the rent previously achieved. Approximately 25,000 new luxury units will hit the NYC area this year, which will further dilute this market.
4. As such, the amount of rental concessions (shows softness) in the luxury market during the summer of 2017 will stay above 20%, which is way up from previous years.
5. The softness in the non-luxury rental market will still be seen until late in the second quarter of 2017, as there will continue to be a high supply on the market throughout the winter and spring.
6. The looming L train shutdown in 2019 will lead to a year-over-year decrease in rents for Williamsburg.
7. You will hear of more friends and family that are able to renew their lease without an increase in rent. Landlords and apartment owners won’t want to risk losing an existing tenant over price.
8. Astoria prices and rents will rise at a higher percentage than its surrounding neighborhoods. Ferry service from Manhattan to Astoria is slated to start in the spring. In addition, the city earmarked $30m to improve Astoria Park and is trying to push ahead with a streetcar service that would terminate in this neighborhood.
9. The Second Avenue subway will lead to higher prices and rents. The spread between 3^rd/Lexington Avenue and 1^st/York Avenue will be lowered and Yorkville will be one of the hotter NYC neighborhoods this year.
10. Mortgage credit will likely be more available due to looser lending standards and will help to prop up the first-time homebuyers market in the second half of the year.

A Tale of Two Different Seasons in One

The fourth quarter market in New York featured two different seasons in one. Before the US presidential election, all price points were experiencing softness. In the four weeks leading up to the election, 677 contracts were signed which represented a decrease of 33% compared to this period in 2015. Then in the four weeks following the election, 837 contracts were signed which represented a decrease of 5% compared to this time-frame in 2015.

Overall there has been a tremendous post-election increase in activity, giving the market great momentum heading into 2017 with the recent uptick in the US equities market. Buyer uncertainty has receded in the last six weeks of the year and there is a level of transaction activity that hasn’t been seen since the spring. Many properties reduced prices during the soft fall and after many months on the market it became common for a languishing property to receive bids during the last six weeks of the year, as open houses that were empty in October had a noticeable uptick in final six weeks of 2016. A tighter connection between sellers and current market conditions emerged during this period. The chart below shows that December was quite active with listings going into contract compared to October and November, as this year there was not a big decrease for December compared to previous years.

Source: Urban Digs

Looking ahead to 2017, rates are expected to continue rising in the second half of the year, which will impact demand for first-time home buyer properties, but mortgage credit will likely be more available due to looser lending standards and will help to offset the loss of demand in this segment. While there is a wild card with a new presidential administration, the sale of properly priced property should remain very strong in the first half of the year.

Overall Softness Not Seen in Years

The rental market usually responds favorably to a soft sales market, but that was not the case this quarter. All price points exhibited weakness. While overpricing and supply continued to be felt in the luxury market, even the non-luxury market was affected by these factors. This past fall it was common to hear of luxury rentals that were signing leases at 10 to 20% less than two years earlier. In addition, an incoming glut of luxury apartments will force more landlords and apartment owners to offer concessions and cut prices in 2017.  The amount of concessions offered this past fall (which show softness in the market) was the highest since fall 2009. The number of concessions doubled this past fall compared to fall 2015.