In honor of
Dave Letterman’s
recent last show, I thought I’d present this month’s market thoughts as a Top 10.
Certainly he was the initiator, at least three decades ago, of this format – it has become
a cliché, but what a nice way to organize things!
Another ( we hope) final Top 10.
A number of things have been on my mind since I returned from a RE trip to Asia.
I’ve been thinking about the different segmentation of the market and why
groups are
reacting differently, about foreign buyers in the market, specifically Chinese buyers, and about mortgage rates and where they seem to be going.
Let’s take a look at the market in some detail with a Top 10 Things Going On in the Market.
10. Foreign buyers are playing a role, but it’s far from the main one
From a recent trip to Beijing, Shanghai, and Hong Kong, I see that there is absolutely no question that New York City is on a very short list of US cities for Chinese buyers.
That said, we are still a ways off from the massive impact expected from these buyers.
First, you have a variety of different buyer groups.
You have the under-$500,000 buyers who are selecting California (all over) and Seattle for
their proximity to Asia.
Second, those same buyers looking here are purchasing outside of Manhattan in areas with good schools.
This will continue to help New Jersey, Westchester, Connecticut, and up the coast to Boston thrive with an influx of Chinese money.
Then, the high end buyers who are targeting Manhattan and Brooklyn certainly will
have an impact with trophy purchases.
However, I believe that, even in the near term, this will be felt more with direct investment in bigger development projects than in
one-off condo investments.
The risk appetite for these investors seems to be higher than for some other investors, and they are willing to invest directly in seasoned developers and their projects.
Yes, we’ll see the one-off investments that Chinese buyers are using for their families
and as rental investment, but I am expecting a sea change toward development investment.
9. There’s an interesting amount of deck chair shuffling going on in the residential brokerages
I don’t know that the deck chairs should be top priority for all brokerages
I’m having fun watching different agents moving from brokerage to brokerage.
Some firms are seeing a real loss of agents, some may shutter doors, while some upstart brokerages are buying their way to market share.
It’s fascinating to watch the shakeup and to see where things will go.
The word for some firms is “disruption,” but I’m as of yet not convinced that the high-touch model of brokerage, with human beings
helping human beings
(with the aid of technology), is going anywhere soon.
Some interesting tech may add value to this model, but I don’t see any Uber-like disruption on the horizon.
8.
We have
no idea when mortgage rates are going up
The crystal ball has been put away.
The date for mortgage rate increases continues to get pushed out.
I wish I had some idea about when the axe was falling, but the ZIRP (Zero Interest Rate Policy) has to end.
The music will stop, and the cost of purchases will go up.
I do not see a commensurate drop in property value to coincide with rate increases.
Sure, rates may go from 4% to 5%, but there will not be a 20% decrease in property value to match.
Even in 2009 we didn’t see prices drop that much.
So, costs of purchase will go up, yes, but we aren’t sure when.
Maybe by end of the year?
Until then, assets prices keep inflating.
7.
Brooklyn is harder to lock down than Manhattan
Yep.
If you want to find a $750,000 two bedroom in Brooklyn anymore, you’ll have to look VERY far out.
Not that there’s any inventory to choose from.
Townhouses are selling regularly for $4mm, $5mm, $7mm.
Nearly all of these sales are breaking records.
Developments are selling out at a $2500 per square foot, blended average.
It’s quite something.
Then, take a trip to the Upper East Side, and marvel at the options you have!
You probably have about 2x the number of listings to look at in Manhattan.
At some point, Brooklynites will demand to secede.
I can’t wait to see what that looks like!
6. Bidding wars galore
Whether you’re looking for property in Manhattan or Brooklyn, if you’re looking for a $2mm house in Ditmas Park or a $2mm classic-6 on the Upper West Side, gird your loins – a bidding war almost certainly will ensue.
Sellers seem to be following broker advice to underprice, ensuring a lot of traffic and
qualified offers.
5.
The value of a broker rarely is
higher than in a market like this
Perhaps it is counterintuitive, but whether you’re a buyer or seller, the value of a broker
rarely is
more evident than in a market like this.
First, buyers need brokers to navigate the bidding process and to leverage their relationships with the brokerage community to ensure their buyers have a fighting chance.
Second, brokers can find out about listings with a little more lead time than
buyers working on their own.
Third, as in all markets, sellers are unprepared to represent themselves in bidding situations.
It nearly always backfires.
Lastly, in a rising market, a broker can help determine what value is, and when to hesitate in a situation where value is no longer present.
Today’s NYC Market
4. 1, 2 & 3 bedrooms are selling briskly
Values of 1 bedroom units have jumped perhaps more than other size units this year.
We’ve seen about a 15% gain across the market, with few exceptions, for the smallest units.
Not only has value jumped, but buyer interest has as well.
We can see some overpricing creeping in with 2 bedroom units, and 3 bedroom units, but the demand is there.
3. The market is highly segmented
That said, there have been a couple of dividing lines in the market that seem to hover around $3mm and $10mm.
Properties up to the first dividing line, $3mm, are selling extremely well, as discussed above.
However, from the $3mm mark to about the $10mm mark, units are staying on the market for an increasing amount of time.
These tend to be the larger 7 room units, that can be 4 bedroom apartments, or condominiums that are nearly all asking close to $2000 per square foot around the city.
We’re keeping an eye on this, certainly to ensure this isn’t only our experience.
Our conversations with different brokers corroborate what we’re seeing, bringing us to our next in the Top 10:
2. Inventory for trophy properties is rising, but those sales continue
Whether a sale of the 551 West 21st Penthouse, Rupert Murdoch’s relisting of his Penthouse at One Madison, rumors that penthouse buyers are trying to flip their properties at 150 Charles in the West Village, the looming mini-tsunami of properties coming on facing Central Park in abundance, or elsewhere, we are seeing units priced $10mm or above both hitting the market and selling.
Not everything will sell, but the best of the best is still in high demand.
1. It’s been a crazy spring, however you slice it
Even if most of deals are below $3mm and above $10mm, velocity remains in the market.
As we push toward the summer, I expect the velocity at the lower end to continue, while it might take until autumn for price reductions for unrealistic sellers of luxury mid-market properties.
However you slice it
Until anon,
Scott