“Hi Scott, How is the market?” is the one question I get every day, and is the driving force behind writing this newsletter every month.
I’d love to tackle that question by breaking it into smaller questions and pulling out some themes.
Let’s look at these:
- What percentage of the market is foreign buyers?
- Has the dollar’s strength impacted the RE market here?
- Has the ruble’s weakness affected the market?
- How are Chinese buyers impacting the market?
- Is there going to be any new development targeting non-super high luxury?
- How can anyone afford apartments in the city anymore?
- Are we in a bubble again?
It’s been a beautiful 5 year run.
The first four questions we can look at together, grouped into the “Investor/Macro Buyer Questions.”
These are about the buyers who have watched a remarkable run
in the NYC market since 2010, and almost are waiting for the other shoe to drop.
Questions 5 and 6 are primary home buyer-focused, or tourist-focused,
about
those who look at NYC real estate and shake their heads.
“Golly, Scott, it’s all so expensive!”
Yes.
Compared to almost anywhere else.
The last question seems to be pretty universal, and would fall under the “Scott, please make a market prediction for us” category, which I’d be inclined not to do.
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Let’s tackle the first group of questions.
I’ve answered this for a number of investors: from what we can gather, foreign investment
comprises only about 10-15% of all purchases of residential real estate.
It’s a meaningful percentage, but not a huge one.
As the snow is nearly gone, and the city begins to sparkle and shine again, we are seeing the buyers come out in droves.
Will a strong dollar impact the market here positively or negatively?
From what we gather, foreign buyers are unfazed, generally, by currency issues.
What I’ve found, for the most part, is that many buyers will use almost any excuse when they aren’t fully committed to buy, and almost any logic to make a purchase make sense, when they want to make that buy.
Call it rationalization.
I’m reminded about a quote from
that is pretty perfect for this occasion.
Essentially, it’s hard to go a day without rationalizing.
Will a weak ruble or Russians fearful of being overly flashy with condo purchases affect their purchasing here?
Probably.
We’re not seeing that activity right now, but any particular country tends to be replaced by another country buyer group.
South America and Asia have more than picked up the slack.
Those buyers want new construction, and there’s a good amount of it for them to buy.
How are Chinese buyers impacting the market?
I believe we’ll need another five years to really gauge the impact.
It seems we’re really at the beginning of this trend.
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The next group of questions – mostly about unaffordability of properties.
Even with a push of new development towers coming online, there really hasn’t been any meaningful uptick in resale properties.
Jonathan Miller sums it up well in this chart.
Further, there isn’t nearly enough property considered mid-market to satisfy demand.
Related is selling a building on 94th Street on the East Side that is flying off the shelf, as they build on a lot they have owned for 25 years and now can get another round of tax deductions against.
They are brilliant.
In the meantime, these buyers will have very high taxes to consider – though
these are
just about the most affordable condominium options I’ve seen.
Don’t hold your breath for more inventory at reasonable prices.
Sellers are generally pretty bad about overshooting on pricing.
There’s a lot of greed right now.
I think it will have to get a lot worse before the inventory piles up too high.
And to answer those tourists who gawk at the prices here: All I can say is, look at the rental prices, too, and you’ll understand that this market has been relatively efficient.
Investors are buying for appreciation, primary home buyers are buying for the long-term, and renters are renting for location.
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Bubbles, bubbles everywhere
And the last one, the big one.
Bubbles.
What do I think about this market?
Is it a bubble?
Someone wants me to say that “this time is different
from 2008,” which I don’t want to do.
There are predictions across the board on what’s going to happen in the near term.
There’s not even agreement about where mortgage rates will be in six months, not to mention that they are 50% what they were in 2008.
The stock market is at a very different place as well.
And yet, there are a variety of signs that we’re due a flattening, which I’ve been talking about for quite a while.
But the spring market really is upon us, and we’re seeing flurries of activity on properties we’re representing, as well as bidding wars we’re helping buyers participate in.
Anecdotally, we’re hearing of some cases of disconnect between seller expectation and buyer willingness – and, therefore, between “the bid and the ask” (the current asking prices and what buyers are bidding) for some apartments. But more
often than that, an overpriced apartment will see no offers.
By June we may see some real buyer fatigue.
But we’re not close to that right now.
I keep thinking that some geopolitical event or worse might play a part in affecting the market, but far be it from me to make any prediction here about what may or may not cause a pullback.
What I am more concerned about is trying to get the most accurate gauges for things like inflation and employment in the city, which help us understand the true strength of the city as a job creation machine and an amazing place to live – and how to help buyers and sellers maximize on their investments.
In the meantime, we’re thrilled to have survived the winter in one piece!! Yay, spring!!
I’ll wrap up by saying that we’re here if you have any buyers or sellers you want to send our way!!
Thanks for your help in making us the #2 team in our West Side office and #6 in the entire firm in 2014.
We’re grateful for your support!
– Scott