Writing this each month for you forces me to take a step back from the busy day as a real estate advisor, from the transactional details and day-to-day business, and look at the market from 30,000 feet.
First things first, there’s been a pause in the market- it’s called August.
As much as we all love New York City, there is the vicious summer cycle-
everyone leaves because no one is around, and no one is around because everyone leaves.
On and on we go…
There was a time, long ago, when much of New York City left in the summer for Saratoga Springs (and the Hamptons were fishing towns).
If you’re interested in reading about that, may I recommend a terrific biography of Cornelius Vanderbilt called The First Tycoon.
Summer or not, the stock market has been as busy as ever, and much noise is being made of it.
I delayed my writing this month watching and waiting to see how things settled.
I didn’t want to wait any longer…
The top 5 things that I’m noticing in the market:
-Noticeable uptick in foreign buyers
-Rates will stay low through 2013
-Smaller-sized coops continue to pile up
-New development is selling at a brisk pace
-Lending has become incredibly difficult
Whether buying hotels, office buildings, or residential apartments, foreign money continues to look to New York City for buying opportunities.
Here’s a good article about the reduction in distressed assets- many purchased by foreign investment funds.
The area will remain a center for business for years to come.
As a global destination, too, Manhattan and the Boroughs are a safe, fun place to shop and enjoy.
I am seeing a parade of different nationalities of foreign buyers who want to own residential Real Estate here.
This article speaks to Chinese buyers-but in no way is it limited to Asia.
European buyers, Middle Eastern buyers, all take a longer view than US lawmakers in Washington, DC.
The strength of the overall US economy seems to be dependent on DC policy.
However, the strength of the New York City economy, and subsequently the housing market here, are
not dependent on the US economy solely.
Even as inflation fades as an immediate concern, there are many other reasons that foreign buyers see NYC as a great investment.
Which gives me a chance to speak not only about foreign buyers, but rates staying low.
Mortgage Rates will stay low through 2013
How will this impact the market?
Those who have retirement assets and near retirement age increasingly see leaving it in the bank as an exercise in futility or even detriment.
Inflation is real in the cost of many goods, though perhaps not housing yet.
These savvy investors look to sexier assets, residential real estate among them.
Sure, gold is somewhere to park money, but so is Manhattan Real Estate.
Even if the market goes sideways, they get to enjoy the property in the meantime- and in a way that is their own.
Ask someone who visits New York City in a hotel versus an apartment- the difference in experience is qualitative.
It is easy to get caught up in the investment-only focus.
While all real estate investors want the best of both worlds,
the investment questions is rarely the only consideration for a buyer.
Each person has different priorities.
Among them, finding a beautiful apartment in a well-run, financially sound building.
I would argue that someone looking for the qualitative experience of Manhattan and having a second home isn’t looking for the flip.
In an uncertain time in the stock market, take a look at someone who cashed out positions to make a purchase in 2007.
He may be much better off today, compared to having left that money in the stock market during the last four years.
With that in mind, low returns on low-risk investments continue to make Manhattan Real Estate worth looking at.
Thought if you are looking to flip (less than 3 years time horizon), I would advise against it.
Smaller Cooperative Apartment Inventory Rising
Any year-over-year or rolling improvement in the market is being driven by sales of larger apartments, with at least 2-bedrooms.
The whims of the economy impact most those buying for the first time.
Psychology plays an outsized role as well.
As the contrarian, with rates being low, I would argue that it’s hard to make a bad purchase, when the rent is more expensive than the own.
However, I understand the illiquidity of real estate- and the risk level these buyers are willing to take right now.
Couple this with lender behavior, and it makes for a challenge to sell small cooperative apartments.
To see why the larger apartments continue to sell, there remains a real push to stay in the city.
Not only do people want to stick around, but they want to have more children in the city.
Larger families fight for the scarce 4- and 5- bedroom apartments.
This should be no surprise- This follows a trend of younger professionals who want to stay in the city, writers touting the benefits of local-everything, riding bicycles to work, keeping things urban.
If you live in New York City, your carbon footprint is pretty small, but nevertheless- the lure of the suburban backyard is not the siren song it used to be.
Brand spanking new is really coming back.
Since there is so little new development inventory on the market, these buildings have finally begun to reach their 50% and over status either in contract or sold.
This makes lenders much happier to lend in these buildings- and coincidentally, with rental rates so high, units that need no renovation work are appealing to investors content with 3-4% returns, primary home buyers, or part-time users.
It’s a confluence of factors that make for a real uptick in sales.
One-bedrooms in these buildings and in condo buildings in general are selling.
Lenders are a pain
Even strong borrowers are seeing enhanced underwriting.
As I write this, I think of enhanced interrogation techniques- and the process may feel like waterboarding to many borrowers.
More on this in my section on mortgages.
Summer 2011 takeaways for August (for our 8th month):
- Buy an apartment next to a bigger one-
This is one more arrow in the quiver for an
exit strategy is much clearer- you can sell to or buy from next door.
- Buy an apartment next to a smaller one–
- Buy with low maintenance, unless you are buying a large apartment-
There has been much made of maintenance, and realistically- Real Estate Tax is one of the big levers that city government has to fill budget gaps.
The other seems to be Mike Bloomburg’s wallet- but that’s another blog entry.
- Assume that mortgage tax will at some point effect New York City coops-
Right now, there is no tax on the money you borrow to finance a coop purchase.
That is, buy coops or refinance what you own while you still can.
You are saving up to 2% of the money you borrow (that’s $20,000 per million borrowed)
I do not believe that the 1.5-2% tax will impact pricing on coop sales, but I certainly feel like it’s a massive untapped resource for the city- and sadly, it will have to happen at some point.
70% of housing is cooperatives- I’m surprised it has not happened already.
- Beware of Strict Coops – Unless you plan to stay for more than 1o years,
be informed about how strict your cooperative is about pied-a-terres purchases (part-time residentcy) or foreign purchasers, as selling may be more difficult.
This is not the same as having a coop strict about financials- I would argue cooperatives are a great investment for that very reason.
- Buy a fixer-upper– Really, the best value right now- you can get a terrific price on something that needs lots of work.
- Have a good architect lined up– if you don’t have the vision- you need to have
someone who does- I would argue that your real estate advisor (say, someone like me, perhaps?) should have the vision to suggest what may be a perfect diamond in the rough for you, but having an architect you can trust will help you see past the current state of an apartment, and into what it could be for you.
This could be your dream home, and taking the time to renovate may be worth it!
- Take a look downtown -Some downtown areas are priced well right now.
Large coops in Tribeca, for instance, continue to see the exit of the pioneers, those who in the late ‘70s and early ‘80s, perhaps later as well, moved to SoHo and Tribeca and now are decamping for different, smaller apartments.
These need work, are very large, and seems to be selling at slightly lower pricing than last year.
The temptation may be for many people to refinance their current apartment, and hunker down until things seem clearer.
I would argue that as long as you’re not selling a one bedroom apartment, this is an amazing time to trade up.