There is a ton of mixed messages regarding the NYC housing market.

There’s much “good news” in the press right now, and sellers are perplexed that their apartments or townhouses aren’t selling. Rates are at historic lows, inventory is still very low, population in NYC is growing, job growth is historically high, and many signs point to what should be a strong market … We probably have maxed out on rental growth for a while, and price appreciation is likely to stay flat-to-down this year, as I’ve written.

This seems to bear out in what I’m seeing in the market.

Sunny days in NYC

But this is way too broad to apply to NYC.

In fact, most of this growth is in the Midwest.

Almost all construction in NYC has been focused north of $2000 per square foot.

And as I’ve noted in my new development post, I am not sure every buyer can afford $5000 per month in carrying charges for his or her 1500 square foot property.
But buyers are focused on NYC as a safe haven
Yes, plenty of buyers abroad are investing here instead of in London.

But there is weakness in the global economy.

You can read here

and here about the impact of lower-priced oil on foreign students.

We will continue to see lots of Chinese investment in US housing.

The question is just about the price point.

Big ticket investments will continue, as in major building purchases, development deals, and the like, but that doesn’t always trickle down to condominiums, and certainly doesn’t trickle down to cooperative purchases.

A happy Upper East Side house

But many of these jobs are entry-level for new college grads who are not buying immediately.

They are renting.

And as rents have pushed up over the last few years, they cannot go up forever.

So you see this confluence of new rental buildings across Manhattan and Brooklyn, at prices no longer affordable for renters.

What happens?

You see rental vacancy go from 1% to 1.81%, per a Citi Habitats report.

Broadly speaking, this isn’t a lot of vacancy, but it’s still a big jump, percentage-wise.

And as transparent and efficient as the rental market is, condo owners – aka single-unit owners – are slower to react to a changing rental market.

As was put in the report above, “These slight – but meaningful – market shifts are signs that Manhattan tenants remain incredibly price sensitive.”
All of this is to say that any number

of investors viewing a downtrend in rental prices will of course be more price sensitive when purchasing units on a one-off basis.

We’re definitely seeing this impact already on foot traffic through condo open houses.
Never mind that more young professionals are living at home than ever before.

That blows my mind.

Another analysis shows that Millenials, even those who are trying to buy outside NYC, are a little short in the savings department.

Like, 37 years short.

That doesn’t help either.
But no one wants to leave Manhattan anymore!
I guess that’s true, to a degree.

Not even when Manhattanites need to go into a nursing home!

When we have spent the past half decade seeing price appreciation, prices coming slightly back to Earth can feel like a big disappointment.

However, as I’ve been writing for the past few months, the gains of the last 6 years have been incredible.
Almost no one who bought in 2007/2008 will end up losing money when they sell.

That, in itself, is quite an achievement.

But, people who sold in 2015 may end up having seen slightly better returns on their home purchases.
But mortgage rates are so low
Yes, yes.

That has driven prices up.

There are some silly articles trying to discover why homes are so unaffordable if rates are so low (hint: they are unaffordable because rates are so low).

Mostly, New Yorkers, and sellers in particular, have it right: purchasing power is strong, so anyone thinking long-term will feel pretty good about buying right now.

But if it’s true that we’ve maxed out on price appreciation, we would see banks start to push back somewhat on qualifying buyers, even at today’s rates.

And the stringent rules, at least for banks and cooperative purchases here, seem to prove that to be the case.

Broadly, loan originations, especially on refinances, have fallen significantly.

Never mind that people are shouting from the rooftop that Fannie and Freddie will need bailouts, that structurally the situation is in bad shape.

Rates do need to go up somewhat if anyone retired wants to have their retirement savings last, or for the economy actually to be more sound.

But that’s another story.

Brooklyn is on fire (isn’t this picture cool?)

Hotter than Manhattan.

Almost all new construction there is rental, so the paucity of condominium, and the relative pricing, and the lower common charges – all of this has kept sales chugging along.

So, if you own in Brooklyn, I’ll give you that: it’s a still an amazing time to sell and get a fabulous price.
In fact, there is amazing news from every corner of the city.

From Downtown Brooklyn’s redevelopment, to the incredible powerhouse that is Hudson Yards, to the Bronx, Bushwick, and everywhere in between, there is interesting development.
So … “Why hasn’t my property sold?”
Plainly put: We are seeing a slowdown of activity.

The agents I speak to are struggling to frame the market right now.

No one wants to be negative, and I don’t think we have to be.

The signs point to the end of a six year run-up of prices and massive activity slowing.

Is it some kind of disaster?
DEFINITELY NOT
But it is quite frustrating for sellers with too-high expectations, psychology being the biggest hurdle right now.

First, inventory has climbed 5% year-over-year on average, and much more in specific neighborhoods (but not at all in others).

While in many cases there are few apartments on the market, such as larger cooperative apartments, there are many more 1-bedrooms.

So, some of the hysteria, positive and negative, must be taken in a broader context.
In summary
We are no longer in a seller’s market.

Absorption rates – the pace of sales month-to-month – show that buyers have more time to see what’s on the market. I would consider this is a sign of HEALTH, in which more deals will happen, just not at the same level as in 2015.

Sadly for sellers, the urgency of the market that we felt in 2014 and 2015 is gone for the time being.

I expect to see:

• Buyers working harder to make a wise choice in this low-rate environment
• Perhaps some of the urgency returning as the reality of actual rate increases having an effect on purchasing power.

  But it may take another six months to see any impact.

• Fewer deals dying on the vine – fewer buyers getting cold feet and walking away before signing contracts (we’ve been seeing this in spades over the past few months)
• More deals at the high end, just at 4-5% lower than in 2015
• Fewer new development deals

Well, that was a mouthful!

More in June.

Happy Memorial Day! Scott