As mentioned during my Winter 2016 report, the pendulum has moved towards the buyers. The spring market kept shifting towards buyers, creating a leveled playing field, with the return of buyer empowerment in a softening market. The excitement that the market experienced the last few years is evaporating. The slowdown is attributed to turmoil in the financial markets, disconnect with what sellers hope to receive and buyers want to pay, and the forecast for mortgage rates to remain steady. Signs that the market has turned more favorable to buyers include fewer bidding wars, more listings hitting the market, more contracts being signed below asking price, and an Urban Digs report that shows contracts signed dropped 20% in the second quarter, compared to the same period last year.

Prices have lowered across the board at virtually all price points and neighborhoods except for entry level studios and one-bedrooms. Many of the current bidding wars are still happening in this part of the market.

Now that summer has arrived, many listings have been taken off the market as owners reassess or wait for September to repost. Active inventory has declined sharply in the past month with 790 less listings at the beginning of July compared to one month earlier.

For all the stabilizing of the market, NYC still remains a great place to invest and rent out your property as a nearly 70% rental city with a solid job market, and housing demand far outpacing supply. While the fundamentals of our market are very strong, the city suffers from a housing storage.

According to StreetEasy the average days on the market increased from 21 to 24 days in Manhattan in May compared to a year earlier, and increased in Brooklyn from 19 to 22 days over the same period. TriBeCa had a huge jump of 64 days on the market compared to 31 this time last year. This can be attributed to new construction condos hitting the market within the last 12 months. On the other end, Gowanus had a city wide low of an average of 9 days on the market. This summer will overall be slightly easier for renters as price increases slow down. Manhattan is experiencing a rental price growth of 2.3% compared to a 6.1% increase from 2014 to 2015.

Although this summer will be a better environment for renters, there is a tale of two markets that has emerged between non-luxury and luxury rentals. Rents in the luxury segment (top 10% of the market which is approximately $6,500 and up) have leveled off and begun to slide, shown in the non-luxury vs. luxury chart below. A softening of the high-end market is due to numerous new luxury rental buildings and the completion of luxury condos that are now available for rent.

Q: When buying or renting, why is square footage frequently available for condos but not listed for co-ops?

A: Most co-ops were built or converted from rentals before square footage was required to be in offering plans. Also, in a condo, one owns real property and the exact size of the property is used to calculate taxes. In a co-op, the shareholder owns shares in the corporation which pays the taxes.

Q: How is square footage calculated?

A: There is no general law or rule for calculating square footage. Some developers include hallways, unusable floor space and foyers, and some don’t. Some also measure to the outside of the walls while others just measure to the inside.

Best Month to List Your Home
Click Here to Read

Tips for First-Time Home Buyers
Click Here to Read

11 Surprising Ways to Create More Space In Your Home
Click Here to Read

Best Cocktail Bars in NYC
Click Here to Read

Best Places to Be Outdoors in NYC
Click Here to Read

Sales Market Update: A Tale of Two Cities

2015 was a year of different stories based upon price point, but the primary drivers of the sales market were local residents. This was reflected in the strength of the $2.5 million and under marketplace. At this level many properties still received multiple bids as demand outstripped supply, and as long as it has a strong price-per-square relationship to other listings, it sold quickly. The listing supply* for these units is around 2 to 3 months throughout the city. This should continue throughout 2016 as the needs of the ever-increasing professional class are not being addressed by super costly new construction, and as interest rates remain very low.

The equilibrium of the market is between $2.5 and $5 million. This segment of the market is still very active, but the pace of sales has slowed while inventory has increased.

The super luxury market will continue to grow with new inventory, but this inventory will linger on the market without price cuts or realistic developers. There is currently a listing supply of more than 40 months for condos priced over $10 million, and this number is expected to grow with the diminishing worldwide buyer pool.

Days on the market and the volatility index shows the divide between these different asset classes. The higher the volatility index number the more power the buyer has in this market.

Overall, buyers will have more leverage in 2016 than they had last year, and sellers will need to be more careful about pricing. The reality is the market hit a peak around 6 months ago. Last summer, I mentioned the best indicator of major disruption in the NYC residential market would be the fall of pending sales. This is what has happened as pending sales are almost back to levels that haven’t been seen in 5 years. I expect the gap between realistic and unrealistic sellers to grow as realistic and motivated sellers adapt to the new pricing dynamics quickly. More buyers will ask for contingencies and they will take longer to make decisions.

*Listing supply is defined as the number of listings absorbed within a marketplace in a particular period of time. So a listing supply of 6 months means that there is enough property available on the market to satisfy 6 months of normal demand. Most experts agree that a listing supply of 6-8 months is healthy.

---

Rental Market Update

The January 2016 Manhattan rental market was the softest in years as the amount of concessions (1-Month Free or No Broker Fee) reached a 5-year high. The latest data from Jonathan Miller, President and CEO of real estate appraisal and consulting firm Miller Samuel Inc., showed that concessions nearly doubled to 16% when compared to 8.5% a year earlier. Additionally, the vacancy rate rose to nearly 3% versus %2.4 in January 2015. Inventory jumping 11% from the year before also contributed to the upward pressure in the amount of concessions, and I expect this number to continue rising before rents begin to drop.

New York also seems to be maintaining it’s second place ranking as the most expensive US city for rents behind San Francisco.

Sales Market Update

The sales market in NYC continues to flourish, except for the high-end luxury market. The second quarter, spring market, is always a busy one for residential sales in Manhattan, so what happened this year compared to last? Although actual closed inventory won’t be published for another month or two, there are some key indicators below to look at regarding inventory and days on the market.

All indices are very consistent with the past two second quarters. This year’s second quarter inventory hit a high point on May 17 with 4762 active listings which was also consistent with the past two spring seasons. If inventory were to hit a much higher number with days on market increasing along with a dip in contract activity then that would show a contracting market.  The current pattern of market conditions for low inventory, tight credit, low rates and a booming local economy was established in the first half of the year in 2013. I’m frequently asked when will this end? Rates may rise later this year which could slow the market down but this would only be a minor disruption. What about a major disruption? There has been some recent turmoil across the world with the Asian stock markets plummeting. Although what’s happened across the world hasn’t yet affected US equities, there is a possibility that it will. If so, this could be a major disruption in the NYC residential sales market. The best indicator that will trigger a change in the residential market would be pending sales. Per the chart below, you can see how pending sales almost matched the high and low points of the Dow Jones Industrial Average.

---

Rental Market Update

Looking at average Manhattan rental prices for June 2015 compared to a year earlier, we saw an increase of 5% (approximately $100/month) for studios with an increase of 3% (approximately $100/month) for one bedrooms. Overall trends for two and three bedrooms are flat compared to the previous year. Developers continue to push pricing in new luxury properties as studio pricing in those buildings rose 12% while one bedroom pricing rose approximately 10% from a year ago.

Although not much has changed over the years in the chart below, it does show a trend that I’ve mentioned numerous times, finding a one bedroom is easier than finding a studio or three bedroom compared to demand of those products. Keep in mind too that many studios are in very high-end buildings and are well above the average price.