An Active Market
The first quarter has set the sales market off to a very positive start this year as inventory on the market had the biggest increase in two years. The first quarter was quite active and had a 6.3% year-over-year increase in Manhattan listings at the end of the quarter. The amount of inventory on the market at the end of the quarter is higher than previous levels in the years 2013-2016 and is a great sign for an active market throughout 2017.
Simultaneously, there was a 6.8% year-over- year increase in listings going into contract after five consecutive quarters of year-over-year decreases in the number of contracts signed.
There is a confluence of factors that led to a more active market. Consumers are no longer on the sidelines as increasing consumer confidence with the rally of the stock market and urgency created by the increasing Federal Reserve benchmark interest rate. In addition, many sellers who failed to sell in 2016, adjusted their expectations and pricing in order to sell.
The opening of the Second Avenue subway, and the reestablishment of Second Avenue to its pre-construction appearance, had an impact as there was a 21% increase in the number of contracts signed on the Upper East Side while Yorkville showed a 30% increase compared to the first quarter of 2016.
Condo inventory priced between $3M-$5M showed a year-over-year increase of 23%, that was driven mainly by new development listings with 15 Hudson Yards, 88 & 90 Lexington Avenue, 70 Charlton Street, and Circa Central Park as the main drivers of this category.
Despite the recent inventory bump, Manhattan is still under-supplied at 5.3 months of inventory. (Six-to-nine months is considered supply demand equilibrium.)
Downward Pressure
Use of concessions in Manhattan more than doubled to the second highest market share on record during the past quarter. The amount of increasing concessions has kept the vacancy rate from expanding on a year to year basis. In Brooklyn the amount of concessions went up to 16% from 6.6% a year earlier. New leases rose 33.5% in Brooklyn which is a combination of the sharp rise in new development entering the market and resistance to elevated rent levels.
New units flooding the marketplace in January has kept downward pressure on rents throughout the first quarter. Rents outpacing income for so long and the amount of new inventory has caught up to landlords.
A major issue for landlords going forward is offering a few month’s rent as an incentive and then ending up with a tenant who can’t afford the apartment when their lease is up and then having to offer a few month’s rent again in order to not show a decreased rent roll. Concessions are now felt through most price points with 64 percent of those incentives on units priced between $2,500 and $5,000 a month.