For this post, let’s try to steer clear of new development and focus on the resale market.
Frankly, there’s enough negativity about the new development market, much of it unwarranted.
Yes, there are a number of new developments that will
struggle to secure construction financing, and I’ve written about the saturation of smaller projects in L Train Brooklyn and elsewhere.
But many projects are seeing strong enough sales, actually.
We’ll touch on that, but we’ll discuss resales.
I seem to have Matt Damon’s voice from “The Martian,” when he says to his NASA
video blog, “It’s okay.
We’ll get there” when describing working through problems he’s facing.
I think of all the developers who are talking to themselves as they sort out next steps on their pricing, etc.
Yet new development sales velocity and closing prices will take months, if not years, to really become clear, as the gap between contracts signed and closings is too wide.
As we see new Housing Permits reports, it seems clear that Manhattan isn’t producing that much inventory- and much of it is also rentals.
So this massive influx of condo offerings doesn’t seem to be in the cards, really.
Housing starts across the country also
have slid unexpectedly, and they aren’t so enormous here.
The influx here is on the rental side.
“Don’t Worry, We’ll Get there.” Matt Damon at his most proud, right before his potatoes get frozen.
So it would seem that the meat and potatoes of the market right now is the resale business.
The issue isn’t that resales aren’t selling well, but that some segments are selling well, and yet many parts of the market are frozen.
I wrote last month about a repricing that seems to be on the way.
I’m seeing it downtown in smaller condominiums.
Yet we’re also seeing very expensive townhouses up to $15mm going into contract downtown. No clear direction.
Given that we’re just past another quarter, the press has offered lots of fun commentary about the recent quarterly reports.
It’s fun to see what gets written, what they get right, what they get wrong.
My firm, Brown Harris Stevens, puts out an excellent quarterly report.
The report offers helpful
details, breaks out resales from new development, while our economist continues to consider what should be highlighted in the next report.
What a lot of sellers are holding onto is that prices are, on average, higher year-over-year.
This data point gives us great consternation when in reality, the prices where many sales deals are getting done at lower levels than 12-18 months ago.
SO, WHAT GIVES?!?
Volume is down 14% year over year- so we know that sales in general have slowed quite a bit.
But here is the biggest takeaway as I see it:
Resale Buyers will act only when they see value.
This mindset, while rarely out of favor, seems to be the dominant buyer psychology at the moment, far from what seems pretty frothy this time in 2014.
New Development is impacted as well.
When my customers tell me that they are going to rent in the city and buy in the Hamptons, we have lost the value proposition battle in Manhattan.
And where does this search for value show up in the data?
Here are a few examples:
The Rental Market
Rental Inventory has surged and some buyers, when faced with this rent vs buy dilemma, are falling back to their rental default.
Streeteasy’s market reporting
gives some clear info on how landlords are scrambling to fill vacancy.
Condo investors are getting the brunt of it, with far less flexibility on pricing.
I don’t think we’ve seen the bottom of the rental market, which will definitely impact the buyer mentality as they decide whether to buy or rent.
New Development Sales have stalled out
this high-end has seen better days.
Notwithstanding the demand for the special developments, such as in Hudson Yards as I wrote about this month, unless developers get wise- and many have- a lot of B projects will have trouble selling.
The A inventory will only sell when there is perceived value compared to resales.
There can be a premium, factoring in cost of carrying an apartment under renovation AND renovation, factoring in the troublemaking of a co-op board, factoring in the ease-of-purchase, but developers beware.
Careful about Misreading Any Increase in Sale Averages or Prices Year-over-Year
If resales are seeing pricing increases, they are seeing them at the entry-level and large-apartment sizes.
And this is because of the continued desire for apartment ownership in Manhattan, along with low inventory for large apartments.
What the sales data doesn’t necessarily capture is the units that AREN’T selling, which are grossly overpriced.
Buyers are ignoring them, and will continue to do so.
Inventory has crept up between 7-10% year over year and will continue to rise.
Let me be the (among the) first to say this.
I’m seeing very overpriced units in Harlem that will start to sit as well.
And the same for neighborhoods that have seen the strongest sales- They have not gone unscathed by recent pricing expectations.
Sellers have just taken properties off the market or seen them sit for a long time.
The Coop Board Disconnect – Buyers Feeling Slighted
Part of the push/pull between
cooperative apartments and condominiums in general is the basic disconnect between coop boards and buyers of today.
Qualified buyers can get great prices in co-ops, but too many buyers are already stretching budget to their max.
Post-closing liquidity is simply not at the level that coop boards expect, and buyers are instead turning to resale condos.
Simply put, there is
not an endless supply of qualified buyers.
The East Side high-end co-op market is bearing the brunt of this, though perhaps this is always the case.
I don’t think it is
a willful ignorance of market conditions, but perhaps an inflexibility to look at the normal
correlation between income and assets and working people grow older.
Generally, younger qualified buyers have higher income and lower assets as a ratio, with retired buyers having lots of assets and little active income.
We will have to wait and see if any co-ops change policies.
I suspect that sellers will instead have to stay patient.
And lastly…
What is To Blame for this ? Real Reasons? Or Just Buyer Psychology
A lot of brokers, myself, expect some shift once the election is over.
Are people really that distracted by the Trump Show?
Can he really be to blame?
Plenty of executives are blaming Trump for every bad market under the sun.
Well, you have two more weeks to point fingers there.
In real estate, there’s no question that demand is here now.
And there will always be a cohort of buyers who are
always negative, expecting the sky to fall.
There seems to be a feeling that apartments have grown a bit unaffordable at current levels.
That psychology will be key in determining the course of the next 6-12 months, if we see an uptick in November, or if we continue to see low sales volume.
To be determined… Have a great month! -Scott