Let’s take an end-of-year pulse of the market with an eye on what could shift the market.
The main sign, most visible after today’s Fed Announcement, seems to be the End of Easy Money.
Will this be a disaster for NYC real estate?
Not likely, anytime soon.
Is Real Estate the Giant Beating Heart of New York City?
The strength and pace of 2012 and 2013, with unprecedented new highs in the condo and cooperative market, along with incredible townhouse sales, will be hard to match in 2014.
Simply enough, double digit increases are likely to be unsustainable.
But let’s review the facts:
Per our firm’s absorption report:
- Manhattan’s absorption rate fell to 3.1 months in December, a decline of 33% from a year ago.
For the last 18 months, inventory has continued to plummet.
- All market areas saw lower absorption rates compared to the prior month.
- The West Side, where I do a lot of business, saw a
rate of 2.3 months – Manhattan’s lowest, while Upper Manhattan posted the biggest decline over the past year.
- Buildings raised monthly common charges and maintenance fees very little this year into 2014, a sign of balanced budgets in buildings and solid financial footing due to refinancing into long-term low rate underlying mortgages. Some buildings saw 1% increases or no increases at all!
In sum, we have been living, then, in a seller’s market, full of buyers scrambling for apartments.
The low inventory environment, while helpful to sellers for the most part, may give way, as the other signs of the current market may point to slowing of this upward climb.
- Buyers showing signs of fatigue, frustration they cannot find anything resembling an apartment they can live in, within what they’d consider a reasonable budget.
- Buyers simply pulling back to wait until the New Year to see what new properties come to the market
- Brokers complaining as well of the issues surrounding the lack of inventory- bad behavior from fellow brokers, seller’s overaggressive pricing of new listings
- The intense competition between investors and primary home users, driving sale prices to levels where property appraisals aren’t matching up to contract price
- Real underwriting scrutiny remains, making it tougher and tougher for all but the most qualified buyers to get large mortgages, loans which are a function of the low rates we’ve had for so many years.
What will increase inventory?
What will slow down the pace of sales?
Surely, with such low inventory, the volume itself has slowed even as pricing has pushed here.
- First, we already see rising interest rates, and expect to see these rates impacting sale prices going forward.
With today’s expected announcement of a Fed pullback in the bond market, rates should finally take a firm direction towards upward movement.
The lowest rates are almost certainly behind us, and demonstrate admission that the economy has legs of its own.
Rates have gone up a percentage point in the last six months, but are still 1-2% lower than they were in 2006-2007.
Our inventory has been looking a bit like this
- Aggressive Sellers – Since I expect to see sellers pushing to price their new listings at very strong asking prices, the addition of rising rates and diminished purchasing power may end up keeping properties on the market longer, creating a healthier supply of inventory.
Combined with buyer fatigue and pullback, sellers may be surprised that their apartments don’t fly off the shelves as we saw this year.
I won’t be as surprised.
- Real Estate Taxes may push up in 2014 as we will not be in a NYC mayoral election year.
By July 2014, we’ll see the culmination of
the first six months of DiBlasio’s stay in Gracie Mansion.
Taxes are doubtful to stay flat.
We may not see the impact of these taxes for another 9-12 months, though.
Either way, tax increases should not be a surprise to anyone going forward.
- Inflation may take hold in 2014.
If it does, it may indirectly increase wages, and we’ll see how that impacts pricing of Real Estate.
Purchasing power is of course linked to any degree of inflation, and the apartment pricing may correlate more closely with inflation in 2014 and 2015, as low rates disappear.
Is this shift priced into the Stock Market?
How gradual will this taper be?
Did the Stock Market expect a bigger taper?
CNBC discusses here.
Inventory isn’t likely to jump incredibly between now and the second quarter, but it should rise as rates rise.
Then, as things unfold, by mid-year we may see pricing that flattens but doesn’t stop moving upward.
A new newsletter format in January and exciting news all the way around, I’m sure.