Continued Weakness in NYC Sales and Rental Markets
2017 was a very rare time in the NYC Residential Real Estate market as both the sales and rental markets exhibited weakness. The amount of sales above asking price is now around one in eight compared to one in three back in 2015. In addition, the use of concessions in the rental market continued its upward trajectory with a new eight year high in the fourth quarter.
The fourth quarter of 2017 featured tax bill uncertainty in the residential sales market as sales slowed. Buyers waited to see the results of the Tax Cuts and Job Act as contracts signed in December dropped 12% (according to Urban Digs) from a year earlier. With inventory continuing to rise year over year, the result in the fourth quarter was prices falling on the higher end of the market. Although there is now certainty with the tax bill, the results are not good for New Yorkers as the tax bill will cap state and local tax (SALT) deductions at $10,000. This will have the most affect upon the mid to higher end price points of the market. In addition, interest deductions on new mortgages will now be limited to $750,000 instead of $1 million. This will affect the $1 to $3 million segment the greatest. It will limit mobility at the lower end of the market since the new tax law only affects new mortgages. This will keep inventory tight among this segment.
There is still wide disconnect between buyers and sellers in the condo market $3 million and up as this price point features 38% of the inventory but only 25% of the contracts signed (according to Miller Samuel).
Although there was downward pressure overall in the sales market during the fourth quarter there was still plenty of activity. Interest rates are still very low and sales could pick up in the first quarter if buyers who postponed their decision choose to buy. The real impact of the tax bill will not be known for some time but with unemployment running low and a strong financial services bonus season there is a case for optimism in the market.
The end of 2017 saw rents fall the most since February 2014, as landlords could no longer just rely upon concessions to find new tenants. 2017 was a very challenging year for landlords. The market is quite soft as renters face many options. The use of concessions hit new eight-year highs in Manhattan, Brooklyn and Queens. In Brooklyn, the use of concessions more than tripled to 46.1 % of the market as the number of apartments has surged in neighborhoods such as Williamsburg and Downtown Brooklyn. While the number of new leases signed jumped by 48% for Manhattan in December this is due to a crop of new buildings entering the market.
Courtesy of Miller Samuel Inc
Rents are basically in decline in every neighborhood as the limits in rental pricing have been reached. However, there are a few exceptions. Rents are still growing in the Financial District and Yorkville. Access to public transportation is a major engine for real estate growth so it is no surprise to see year over year growth in Yorkville.
With more new rental inventory hitting the NYC market in 2018, the downward pressure on rents will be here to stay. If you own property, the best advisement is to keep your tenants. It is very likely that you will get less rent when finding a new tenant than what you received in 2015 and 2016.