Happy New Year!
Dear clients, friends, and readers:
I have loved consistently delivering a newsletter mid-month for all these many months and years, as it gives my voice a little more room to resonate, when I’m not competing with quarterly reports, and the noise of beginning-month missives.
With the beginning of 2013 a few days
behind us, I have also had some time to step back and consider what has been going on with inventory.
Our 4th quarter report shows the nearly a complete shift
to a sellers’ market.
Inventory has come down nearly 40% year over year.
This is the lowest inventory has been in over 12 years.
12 years ago was the top of the internet bubble, pre-9/11, when we were all getting things delivered in 30 minutes or less by Kozmo.com.
I revisited two articles that I had written in the summer, one about what was driving buyers into the market, and one about what was keeping sellers from listing their apartments.
I felt it timely to think about them again, to see what has changed, nearly 2 quarters down the road.
In my “what’s driving buyers” post I
had been covering sales at the high end of the condominium market, but frankly inventory has dwindled now across all segments, and the inventory drought is impacting everyone.
The lack of inventory is, slowing the velocity of the market.
And the two
be the following:
For Sellers: “Should I expect to see price appreciation for my property, if I sell it?”
“When will more inventory come to market to satisfy demand?”
Let’s cover the first question, since it’s likely to be a bit easier to see and understand
in the short-term.
Unless you purchased a one-bedroom or studio in 2007-2008, your property should almost certainly have appreciated beyond your purchase price.
Given the reduced inventory, and increased demand, the Economics 101 answer is that we will see price appreciation this year in closing numbers, as we have already seen in 2012 numbers for most 2’s, 3’s and larger properties.
Realities on the ground seem to corroborate the simplistic view, due to all other factors.
Rates are giving buyers purchasing power to make “bold” decisions on purchase.
One secondary question might be: “Is there a special something that would make sellers earn more money now than later in the year, or in the future?”
I bring this up because
a seller voiced some concern last week that he could be one of many, many sellers preparing to put his apartment on the market soon- and perhaps there would be a “boatload”
of inventory in February and March, as we head to Spring.
I’ll answer that below in regards to inventory.
I’ve answered my first question.
My sum-up is that the window remains open for some time for sellers, when we’ll see stronger-than-normal price appreciation in the short-term for larger apartments, more steady apprecation on smaller units, then we will have to see some pick-up of inventory which will temper these gains through 2013.
Whether that inventory pick-up will precede or coincide with a change in mortgage rates remains to be seen- My sense is that inventory will precede any fundamental shift in rates by at least 6-9 months.
But I haven’t fully addressed the second question, about inventory.
Will it pick up?
Will it pick up soon?
I discussed inventory in the summer, wondering if we would see more inventory in September- it simply didn’t materialize.
At this point, I’m less inclined to expect a flood of inventory.
I’m sorry to be the messenger of this news.
Given that volume is fairly important to our business, I would LOVE to see this flood of inventory, but behind the scenes, the anecdotal evidence isn’t there.
Of course, the contrarian person might say that inventory will pick up when we least expect it.
But we have enough visibility as brokers
to be doubters for now.
I simply think that sellers will not become aware enough of price appreciation for another quarter or so, and inventory will likely start to increase again and make for an insanely busy summer/Fall.
do not think, however, that this should discourage buyers.
There is great property coming on the market- and
any new inventory will reflect new and aggressive pricing.
I would love to shout from the rooftops about how successful sellers are at the moment, but the earmuffs in the winter are pretty thick for many sellers.
And frankly, most of what is keeping sellers off the sidelines hasn’t changed, and in fact new tax laws enacted less than two weeks ago may be an even larger deterrent than a strengthening market.
Nearly 25% capital gains’ taxes are quite scary to sellers, with the scarier specter of inflation looming.
Low inventory gives two bedroom sellers little to upgrade to in the city.
Time will help sellers better understand what how these taxes fit into their bigger picture.
And while buyers are waiting, what we will probably see is a reactive push back into the suburbs for all but the most affluent New Yorkers.
Suburban empty nesters will continue to swap places with 1-2 bedroom sellers in Manhattan as well, as time-sensitive sellers who don’t have more than $500,000 in capital gains are immune to these new laws, at least as it pertains to the sale of their primary home.
I’ll cover interest rates in my next post, and continue my thoughts there on how that might, if at all, impact pricing.
(Hint- not much in the short-term).
Again, happy new year to you and yours!