Buying New York

The 2018 residential market ended the year with a complete reset of conditions compared to a year earlier. The chart below shows the complete change in conditions with inventory increasing by 23% in 2018, while the number of contracts being signed had a 7.4% year over year decrease. Nowhere is the shifting dynamics more apparent than the average days on the market starting 2019 at 90 days when compared to 69 days one year earlier.

This is a buyers’ market at all price points. Pricing has fallen by approximately 10% in the past ten months alone. Due to a shift in the market with few bidding wars, high supply and low demand, buyers do not face a sense of urgency in the current marketplace.

Stricter co-ops are really suffering in this market with a very high amount of supply and younger buyers opting for condos over coops due to the strict rules of co-ops such as sub-leasing and renovation policies.

Sellers need to avoid saying we need X price in this market and exhibit patience. When listing their apartment, sellers need to question real estate brokers who are not using comps from the past few months. Pricing dynamics have shifted so much in the past year that even comps from the first half of 2018 are outdated. Pinpoint pricing is necessary for a successful outcome in this market along with sellers presenting the apartment in a favorable way. Whether it needs a fresh coat of paint, re-polishing the floors or staging, only an apartment with the proper presentation and price will sell in this market.

The chart below shows how critical it is to price your listing right from day one. If your property has been on the market for over 90 days, you are only likely to sell at a price that is far removed from the asking price. Once the property has been on the market for over 90 days, sellers should expect offers at 10% less than the asking price.

The Long Island City Market is one of the few bright spots in the market due to the November announcement of Amazon opening up their second headquarters that will bring approximately 25,000 new jobs to the area with an average income of $150k. Pricing is up by approximately 5% in Long Island City since the Amazon news came out.

In addition, the halting of the 24/7 L Train Shutdown provides a bright spot for listings in Williamsburg and Bushwick as we start 2019.

While the macros of the economic environment and low unemployment are still favorable, the market we have now will be with us until at least the end of the tax season.

One thing is crystal clear as we enter 2019- the opportunity for buyers in 2019 awaits.

The rental market remains stuck in neutral. Although certain aspects of the market have benefited from local residents choosing to rent instead of buy, there is still a high amount of new apartments hitting the market which means a continued stay on the market of concessions. Renters still expect concessions in the market with a free month of rent or the owner paying the broker fee as 41% of apartments late in the year contained a concession according to Miller Samuel Inc.

With the months of September and October behind us, I want to be the first to give an update on the Fall Residential Manhattan Market since the industry market reports won’t be released until the end of the year. On October 12, the amount of inventory on the market exceeded 7000 available units to purchase. Since that date, the amount of inventory on the market has fluctuated between 7000 to 7215 units. This number will start to decline as properties are taken off the market for the holiday season. Here are some topics from the fall market:

There continues to be an excess supply of inventory without a corresponding increase in demand to prevent falling prices. The amount of inventory we are seeing on the market this fall is the highest amount we have seen in any fall season since 2011.

Contracts being signed is still near the same rates as the past few years. Deals are still getting done but nowhere near the amount needed to keep pace with the increased supply, which has led to a decline in pricing. Another factor that shows the declining market is the increased days on the market. According to UrbanDigs, average days on the market hit 88 on November 9 which represents a high not seen since December 16, 2012.

New supply for co-ops continues to increase as October 2018 marked the 15th straight month with a year over year increase in new supply for co-ops.

Co-op inventory priced at one million and under continues to increase at a staggering rate. This October showed a 92% increase for this price segment over three years ago.

While this market segment is slower from an excess amount of inventory on the market, contracts are still being signed on the same levels as last year. However, according to the Halstead Open House Index average open house attendance has fallen to 2.36 average attendees compared to an average of 4 one year ago. So what we are seeing is that those that are viewing properties are serious buyers and understand the opportunity to buy in a declining price environment with increased supply.

Specific neighborhoods and price points are more severely feeling this declining market than others. The Sutton Place, Tribeca and Financial District Condo markets are featuring a staggering amount of inventory with very few contracts being signed. Buyers in these neighborhoods have maximum leverage with very high supply and low competition from other buyers.

In addition, signed contracts for the third quarter in Manhattan represented a low not seen since 2008. The condo market under five million exhibited considerable weakness in signed contracts, which are our best measure with demand.

The other measure of demand is open house attendance. After a spike post-Labor Day, open house averages returned to their weekly average that was seen throughout the spring and summer. Approximately 15 to 20% of open houses have no attendance reported over the last weekends of the third quarter.

A high increase in unsold inventory continues to infiltrate the market. There isn’t enough demand in the marketplace to keep up with up the ever increasing inventory that continues to hit and stay on the market. September 2018 had 2346 new listings which represents the new monthly high for this decade which breaks the previous records established this past spring.

The co-op market in Manhattan continues to show big spikes in inventory compared to one year prior as there were 2939 apartment on the market for the middle of September which compares to 2112 one year prior. Furthermore, the one to two million price point for co-op’s is showing over a 30% inventory jump from the end of the third quarter in 2017.

As a result of this high inventory, during the week after Labor Day, about 800 apartments contained a price decrease, which is the highest amount since 2009. Most neighborhoods in Manhattan feature 25 to 30% of listings that have had at least one price discount.

The entry-level end of the market has continued to soften with more inventory and less demand in the aftermath of the recent new tax law. Since the majority of apartments at this level include financing, sales are falling with rising interest rates. More so the under $1 million price point for co-op’s is showing over a 53% inventory jump from the middle of September compared to one year earlier.

Oversupply of units, decline in foreign buyers, anxiousness for local residents regarding the new tax law, political tensions and a rising interest rate environment are all contributing factors to the current market.

Sellers should avoid attaching a price from the market that existed before the new tax law and skeptical of any broker that is pitching business without 2018 comps. Almost all price points in all neighborhoods are showing a high amount of inventory along with lower contracts signed. Even an appropriate priced listing, may still yield a deal almost 10% below asking price.

Showing Median Listing Discount | Manhattan Overall

Source: UrbanDigs

The market that we have now will continue to be here throughout the rest of 2018 and early 2019 creating opportunities for buyers this fall and winter. Sellers need to price conservatively and expect only a single offer on their apartment in the current environment.

Welcome to my 2018 preview of the fall season for buying and selling real estate in NYC! Market reports and the media tend to be reactive, so I want to express some thoughts that are more predictive. Although apartments are bought and sold year round, the main buying and selling seasons in NYC are the fall and spring months. These two time periods give us the best indication of the market. As such, here are some thoughts about the fall market 2018:

Highest Amount of Inventory Available in Fall Market Since 2010

Manhattan inventory continued to go up rapidly during the spring months. The peak of the spring market was on June 24 with 7,326 apartments on the market. In most spring seasons, the peak of inventory takes place in May. The peak on June 24 represents a later than normal peak which speaks of the high amount of apartments languishing on the market. Inventory always decreases over the summer as there are fewer newer listings and many apartments are taken off the market until September.

At the end of August, inventory fell back down to 5,600. Last September and October featured a 22 percent increase in inventory. With a high number of apartments being taken off the market and listings moving onto a second, third or fourth broker there’s no reason to expect that the fall peak in inventory will closely resemble the spring peak that reached in June.

Based upon looking at historical data combined with the current economic environment, my projections for Manhattan inventory at the end of the following months are below:

Buyer’s Market Advantage Increasing

Year over year contracts signed was down slightly for the spring market compared to this same period for 2017. The amount of contracts signed is always lower in the fall months compared to the spring months. There are always buyers who want to buy in the spring in order to be settled for the fall school season so fall consistently has better contract signed numbers.

This past spring featured a buyer’s market across all price points in all neighborhoods. We have not seen since the beginning of the decade. With a number of listings similar to what’s typically seen in the spring market—but lower demand with contracts signed—this fall has the opportunity to be an even better market for buyers. Of the open houses held this spring, 20 percent consistently featured no attendees. Do any buyers who disappeared from the market come back into the market or do they continue to stay on the sidelines? If so, this open house attendance number will provide a good indication if buyers are tired of staying on the sidelines.

Increasing Days on the Market – Higher Discrepancy Between Buyers and Sellers

One of the signs of higher discrepancy between buyers and sellers is increasing days on the market. This translates to more unsold listings which translates to more leverage for buyers when making offers. This past August shows the trend of increasing days on the market:

As such, based upon data of past trajectories of days on the market, I’m predicting the following:

Trading Up Opportunities

The following types of apartments in neighborhoods below are experiencing lower inventory than one year ago. In addition, the next product size up is experiencing higher inventory than one year ago. Therefore, there are favorable conditions to sell and then buy a bigger apartment!

• East Village – Sell Two Bedroom Condo and Buy Three Bedroom Condo
• Greenwich Village – Sell One Bedroom Condo and Buy Two Bedroom Condo
• Hells Kitchen – Sell One Bedroom Co-op and Buy Two Bedroom Co-op
• Hudson Heights – Sell One Bedroom Co-op and Buy Two Bedroom Co-op
• Kips Bay – Sell One Bedroom Condo and Buy Two Bedroom Condo
• Morningside Heights – Sell Two Bedroom Co-op and Buy Three Bedroom Co-op
• Tribeca – Sell Two Bedroom Co-op and Buy Three Bedroom Co-op
• Turtle Bay – Sell One Bedroom Condo and Buy Two Bedroom Condo
• Turtle Bay – Sell Two Bedroom Co-op and Buy Three Bedroom Co-op
• Upper West Side – Sell Studio Condo and Buy One Bedroom Condo
• Washington Heights – Sell Two Bedroom Co-op and Buy Three Bedroom Co-op

*This post was originally published on September 17 in RIS Media’s HouseCall

2017 was a languishing year for the residential real estate market in Manhattan. While the stock market showed almost a 25 percent gain, the average sales price for Manhattan was flat. 2017 was a very rare time in the New York City residential real estate market amid a strong U.S. equities market and low unemployment.

2018 has exhibited further weakness that can be attributed to the nation’s new tax law, which contains the loss of state and local income tax (SALT) deductions and newsworthy political and trade news that makes buyers jittery. In fact, apartment sales in Manhattan dropped slightly over 10 percent year-over-year per the Wall Street Journal during the second quarter. This follows a first quarter that saw approximately a 24 percent decline in sales compared to 2017, according to appraisal firm Miller Samuel. Demand has fallen with approximately one in five Manhattan listings showing consistent zero open house attendance during the spring market. This season has consistently been the best indication of the market, with many New Yorkers buying and selling this time of the year to get their families situated before schools open in the fall. In addition, inventory is rapidly on the rise. The amount of monthly new supply that was placed on the market during the months of March, April, and May all broke the previous monthly decade record. The amount of supply hitting the market is affecting all Manhattan neighborhoods and price points. Many Manhattan neighborhoods are exhibiting a 50 percent year-over-year increase in inventory below the $1 million price point. This is a far cry from the low inventory years of 2013 to 2015 when bidding years were quite common.

However, Manhattan residential real estate is still a great long-term investment amid whatever the current trends say. In fact, the increase in average sales price starting at the beginning of 2001 until the present outpaces the stock market by a sizable percentage. If you purchased an apartment early in 2008 before the last recession and want to sell now, which includes the current market correction, the average sales price still represents a 21 percent gain. While it cannot be easily sold like a mutual fund or other publicly traded investment, investing in real estate can be very rewarding and a great way to diversify your portfolio. Manhattan has had historically a low vacancy rate, as there are always people moving here for jobs and school. An investor can still find a healthy cash flow with the long-term appreciation that is greater than the stock market.

When a negative economic event trigger occurs and liquid markets sell off, Manhattan real estate is thought of as a safe haven. When the subprime crisis was happening, every other housing market across the country was suffering worse than Manhattan. The reason is that Manhattan is all about co-ops and condos plus luxury townhouses, where only those with very good financial security are able to purchase. Most co-ops have a 25 percent debt-to-income ratio and require 24 months of mortgage and maintenance in reserves post-closing. Co-op standards are stricter than most banks. These stringent policies helped to make Manhattan one of the first markets to recover after the last recession, as the borough has very few foreclosures. The economic fundamentals of the real estate market are still very strong. Manhattan is the nation’s leading center of banking, finance, and communications. It is still arguably the preeminent global financial center, unquestionably the global media capital—and there is still only one Broadway. Technological companies want a presence in Manhattan and are not going anywhere. Take security in Manhattan real estate as a safe haven.

*This post was originally published in the August 2018 issue of The Mann Report

Similar to April, the month of May is one of the key months from a data point of view in the residential market. The main market reports to summarize the spring market won’t be out until another month but here is a quick rundown of what the reports will be saying. Inventory on the market is the best measure of supply while contracts signed is the best measure of demand.

1. Inventory continues to increase at an astounding rate. May saw over 2300 apartments hit the market in Manhattan, which serves as the third consecutive month that the amount of new monthly supply hit a record for this decade. Based upon past trends, this monthly high should stand until at least the fall as inventory should begin to diminish in June as the heavy majority of new spring listings have already been placed onto the market while other listings are taken off the market for the summer

2. The overall amount of contracts being signed for May is in line when compared to the month of May in 2015, 2016 and 2017. Deals are still getting done similar to past years but the amount of listings not selling continues to rise which makes pricing conservatively key in this market. With so much inventory on the market, buyers have plenty of options and with many properties experiencing very slow open house traffic.

3. Contracts signed per inventory came in at 16.3% for the past month, which is almost half of what it was back in May 2013 when this number was hovering around 32%. This number helps to show the leverage shift in the market towards buyers.

4. The condo $10 million plus market had another favorable month when compared to one year ago. Twenty-two contracts were signed in this group, which is the highest amount since May of 2016. The condo market overall this spring compares very similarly to the 2017 spring market.

5. In the co-op market, the amount of contracts being signed/per inventory on the market had a better month compared to April but the numbers show a clear pendulum shift towards buyers when compared to previous springs. Every price point for co-op’s is showing a high for inventory in May when compared to any month within the past five years.

6. A lot of neighborhoods continue to show big inventory gains with similar or decreased amount of contracts singed compared to a year ago. A focal point in the inventory chart below is the amount of co-op listings available at the less than one million price point compared to one year ago in many neighborhoods.

In conclusion, prices have nowhere to go but down without the surge in demand to match the increased supply. Furthermore, with rates expected to rise in the second half of the year, demand that is shown in contracts signed risks further year over year declines.

The main market reports that summarize the spring market won’t be out until the first week of July.  Here is a quick and more immediate preview of what is happening in the spring market.

1. The amount of inventory hitting the market is increasing at a staggering rate. The supply (condos, co-ops, townhouses) of new inventory hitting the market in April was 2265. This amount represents a high this decade for new inventory hitting the market in any particular month. This comes after March 2018 was the previous new high this decade with 2003 condos, co-op’s, and townhouses coming on the market during this timeframe.
2. While overall inventory has had a sharp increase, the amount of contracts signed is basically flat from a year ago. However, the amount of contracts signed per inventory on the market is hovering around 15%, which means this spring is on a trajectory to be the best spring market for a buyer since 2011.
3. The December 2017 Tax Bill has been reported to give a big tax break to owners and investors in certain types of businesses. The $10 million plus market had 24 signed contracts for April, which is up from nine one year ago amid a similar amount of supply on the market as last year. In fact, this is the only price point across the board that is more favorable for a seller then one year ago.
4. The coop market is made up of NYC working class professionals. These are the individuals that are negatively impacted by domestic legislation such as the Tax Bill. The changes in the SALT (State and Local Property Taxes) and Mortgage Interest Deduction along with a rising interest rate environment are clearly having an effect upon the co-op market. In fact, the co-op markets between $1 to $2 million and under $ 1 million are showing a very low amount of contracts signed per inventory on the market. For instance, the $1 to $2 million market is showing approximately 18% contracts signed per inventory on the market, which is down from approximately 40% during the low inventory years of 2013 and 2014. While contracts signed for both of these segments are on par with past years, the issue lies in that too much inventory is being placed on the market with low absorption. For instance, the amount of coop inventory on the market between $1 to $2 million is at 653 listings, which is up from 488 a year earlier. The under $1 million coop market saw a precipitous increase up to 1334 from 835 in April 2017.
5. Inventory is the best measure of supply, while contracts signed is the best measure of demand. The latest neighborhood trends are astounding. Here’s some of them in the co-op market:

Data from UrbanDigs

Bottom line is there is not enough demand out there to match the rapid increasingly supply, so comps for most segments have no where to go but down.

According to Miller Samuel Inc., Manhattan sales in the first quarter of 2018 dropped 24.6% from a year earlier, which represents the lowest number of sales for a quarter in over six years.

Courtesy of Miller Samuel Inc.

The primary driver of this drop can be attributed to the nation’s new tax law, which contains the loss of state and local income tax (SALT) deductions.  February and March continued to feature newsworthy events consumed with questions about Cyber Security, effect of Russian hacking on our presidential election and volatility in the stock market. All of these factors added up to uncertainty in the marketplace, which was reflected in hesitant buyers. One additional factor that may have led to decreased contracts signed in March is the impact of four business days being lost to Nor’easters.

A strong bonus season in the financial services industry is usually reflected in increasing contracts signed. The New York State comptroller’s office stated in March that investment banks handed out $31.4 billion in bonuses, which is a jump of 17% from a year earlier. However, an increasingly willingness on banks to give bonuses in the form of deferred payments and stock with a vesting period represents illiquid compensation that cannot be presently used to purchase a residence.

Courtesy of Miller Samuel Inc.

While economic fundamentals are still strong, there will be downward pressure on prices as inventory continues to increase. There is an accretion of apartments on the market due to the price discrepancy between buyers and sellers. Many sellers are reducing prices as price discounts are very common these days but a price discount cannot generate the same amount of interest as if it were a new listing.  Prices have stopped going up except for parts of Brooklyn that are further south and east and parts of Queens that are further east.

For buyers this is a very favorable market. In time, sellers will become more realistic with pricing and a new equilibrium will hit the market. NYC real estate still represents a great long-term investment.

The rental market across Manhattan, Brooklyn and northwest Queens is still inundated with near level records of concessions.  Rental concessions in the marketplace continue to show a soft market. Rental inventory in Brooklyn showed that a new record level of concessions took place in February as 47.5% of listings had a concession. This is way up from February 2017 when roughly 18% of listings contained a concession.

Courtesy of Miller Samuel Inc.

With roughly 6,100 units this year and about 9,600 units rental units next year expected to hit the market in Brooklyn, there is no upcoming end for this high concession rental market. Meanwhile, Williamsburg and Greenpoint are clearly showing the affects of the looming L train shutdown as rents dropped for the seventh consecutive month.

Seasonality continues to play a major part in the New York City market as NYC has high variance in rental prices depending upon the month. Renters are advised to look for an apartment in the winter while it is recommended that landlords and condo owners contain leases that expire in the summer months to get the most favorable terms.

Courtesy of RENTHOP