Sellers are facing as difficult conditions as we have had in recent memory even amid a declining interest rate market and a rising US stock market. The sales market continues to remain quite soft. According to UrbanDigs the average number of days on the market for properties in Manhattan hovered between 87 to 109 in the second quarter which is way up from between 62 to 85 days during the second quarter of 2018. When a listing has been on the market for 90 days without a price drop, it is clear that the market has spoken. The amount of inventory on the market this past spring reached highs that we have seen since the spring of 2011. While contracts signed in Manhattan had a 15% increase in year-over-year contracts signed for April, the May and June numbers were very lackluster. These two months both had approximately an 8 to 9% decrease in contracts signed.
The second quarter also contained the reaction to the increased mansion tax for properties at two million and above. This mansion tax created motivation for buyers and sellers to enter into contract in the early part of the spring and close by the end of June. However, the year-over-year contract signed numbers below do not show a material impact.
While Related’s Hudson Yards project and Vornado’s 220 Central Park South are continuing to create a lot of buzz and selling quickly, there continues to be glut of new construction properties on the market. In fact, the new development market recently reached a high for supply that we have not seen since November 2010. With a high supply and developers facing time-sensitive pressure to close deals to pay down loans with looming maturity dates, developers are faced with the realities of giving away concessions such as paying for a year’s worth of common charges or giving buyers flexibility in the interior design of the units.
However, a new construction shutdown is far down the line such as 2021 and 2022. Currently there are much less files for new development then in past years so eventually with the slowdown of new supply and absorption of current and near future inventory, an equilibrium can return. In addition, the new rental laws enacted make condominium conversions very unlikely in a rent-stabilized building with 51% of current tenants having to agree to buy their apartments before a building can be converted into a condominium or a co-op, which is up from 15% before this law was passed. A property owner will now have to be at the mercy of the majority of tenants agreeing upon terms and pricing instead of the landlord setting the terms for the conversion which makes such conversion improbable.
While the sales market continues to remain soft, that is not the case in the rental market as it was a very robust rental market this past spring with vacancy rates showing record lows. It is a great market for apartment owners and landlords with rents back on the incline. Owners who want to try the sales market are advised to adapt a dual strategy of placing the property on the market for sale and rent at the same time. With a strong rental market that will mean more eyeballs on the property and it’s possible that someone may want to purchase the property who saw the listing for rent.
A consequence of the new rental laws is that lower priced free market apartments will become increasingly more expensive with property owners no longer being able to take apartments off rent control. Given this new law, purchasing a condominium that translates to a rent slightly above $2775 is a great idea as this was the old threshold landlords needed to clear to remove an apartment from rent stabilization and place it into the free market.
Another long-term positive sign for the rental market is the increase in the national trend of people saying that renting is more affordable than owning. According to a new survey from Freddie Mac, a record 82% of renters say renting is more affordable than owning which is up from 67% just a year ago. A trend like this continues to create downward price pressure on the co-op market with local residents bypassing the strict rules of co-op’s in favor of renting. It does make it a great time to purchase a condo as local residents have to live somewhere and when combined with the new rental laws there will be much less new competition in the years ahead.
Given the soft sales market and a very strong rental market, now is the time for domestic and international investors to buy property in New York City with extremely favorable conditions.