As I’m writing this, we remain in the middle of a full-fledged seller’s market, not to mention a lovely summer – barring the last couple of muggy days.
Just as geographically regional clothing style (or regionality in general) seems to be fading, as information transmits more quickly than ever, so, too, am I reading articles such as this one in the WSJ about bidding wars across the US.
The demand for housing seems to be uniformly strong at the moment, though the prices of these houses certainly isn’t.
Our BHS Second Quarter Report shows a few things:
- New records for average resale apartment pricing
- New Development takes the highest % of overall closings, ever
- Highest median average closing price for resales, ever ($920,000)
- Larger apartments continued to outpace smaller units for appreciation
In real time, negotiating the actual properties that comprise these statistics continues to get a little messier than it
At the very least these anecdotes provide me with some fun things to write about each month.
So, how do these statistics and messy real-time developments reflect in what are we seeing in this Seller’s Market?
- First, we are seeing a strong upward asking-price shift, with some aggressive seller overpricing for resale apartments.
- Buyers have adjusted to a new normal for what they think is a reasonable price per square foot, even if it is a disconnect from current seller pricing (that is, lower).
- We’re also seeing an astoundingly high (and growing) price level gap between New Construction prices and the rest of the market.
- Lastly, as buyers struggle to compete for an ever-dwindling supply of property, especially condominiums of any kind, their behavior grows erratic, antsy, and downright insane.
At these prices, let’s just say that buyers are being creative in how they try to make the current inventory fit their goals.
Strong Asking Prices, Overinflated Expectations for Sellers
Generally, as a seller’s market reaches a certain strength, sellers maximize on some version of this thinking:
(1) The evergreen “My property is more special than anything it competes with” (this is pretty much always) (2) “My property is worth more than the market comparables” (3) “I compare my property to those in other buildings which may have achieved much higher prices than units in my building”
(4) Macroeconomics 101 logic prevails over all other thinking – reduced inventory and increased demand allow me to put on a price tag that is far, far beyond even the wildest of dreams.
And so, the pendulum swings ever-further to the right for sellers and these thoughts of achieving high prices.
Note that I am not writing delusions, because my team and I have helped sellers achieve record prices in their buildings.
However, there is a difference between optimism combined with good marketing in a seller’s market – and a dangerous disconnect from reality.
prices of late, many sellers will
overprice a commensurate amount.
Properties will sit longer as a result.
I know, I keep writing about this month after month.
And yet, what we see sell the most quickly are the properties that are slightly underpriced that go into bidding wars and likely achieve the same final price, in a much shorter amount of time.
Or these listings achieve an even higher price than those that go to market with too much fat on the bone.
How will this represent in next quarter’s numbers?
I suspect we’ll see a Longer Average Days On Market
and certainly a Bigger Gap between Asking Price and Final Sale Price.
to convince sellers to follow a slightly more conservative path with pricing, always in the service of achieving the highest price at the end.
Accurate pricing is still the winning strategy and requires expertise in your corner.
A New Normal for Buyers and What They Expect
Meanwhile, what defines
value in properties has shifted upward for buyers.
That is, buyers are willing to pay for properties.
While there remains buyer fatigue as buyers lose bidding wars again and again (see below for more), prices per square foot for condominiums, along with higher cooperative prices, reflect a meaningful shift.
For instance, on the Upper West Side, condominium prices per square foot have moved from $1000 to $1200 to $1500+ per square foot over the last 3 years for the middle-of-the-road new development such as 175 West 95th Street
Harlem prices per square foot have shifted during the same time from $750 to $1200 per square foot in many cases, as high as $2000 per square foot near Central Park!
$2000 per square foot has become quite common across many areas, in fact,
receiving little pushback in New Development.
The trickle-down effect is to see increased prices on cooperatives, when they represent value, solid construction, and stability.
While investors really cannot use coops as an investment vehicle (see more below), they are accepting lower returns on their purchases of condominiums.
When we see buildings like 172 Madison asking $2000 per square foot on lower floors and not having units fly off the shelves, we could think that it’s just about price.
Primary home buyers are paying higher prices for existent condo inventory than a year ago, because they can move in immediately and understand their fixed costs.
These buyers and investors
are seeing new properties with closing dates of early 2017 with a little bit of concern.
Investors will accept lower returns if they can get them today.
Tying up 10% for 2 years with no return holds less appeal.
For primary home buyers, too, there are lots of different risks built into buying off a floorplan – I covered some of this in this month’s Mortgage Section.
Developers are back to this strategy, which has been working in prime locations, just not everywhere.
I have to think that fear of rising rates looms large for everyone right now.
Speaking of prime locations, fully renovated
are seeing incredible sale prices.
Built on spec, these buyers see value in
bypassing the permitting and renovation process, which also has its risks in time and money.
Money remains cheap, and time remains expensive.
However, developers looking for these types of opportunities across the city grow frustrated with asking prices.
In situations where they take on all of the risk, many asking prices even for land on its own imply incredibly high sellout prices to be successful.
A Growing Gap Between New Construction and The Rest
With the above in mind, the most successful pricing achieved still remains in New Development, at the moment.
It seems that US and foreign buyers are quite interested in that New Car Smell.
But I don’t sense that these are investors, except in a loose definition of the word.
Certainly, these buyers want to see a return on their purchases, but
they are end users or those who are parking money.
These buyers want the brand new, shunning even 5-10 year-old buildings in many cases.
One would think intuitively that fully renovated apartments would sell more easily than units in need of work.
And that brand new renovation would sell more easily than recent lived-in renovations.
And brand-new buildings would sell better than them all.
That said, the distinction might be that $1500-2000/square foot is the going rate for non-New Construction condominium, while New Construction could easily be $2400/square foot up to $10,000 per square foot.
That is a huge difference – does it make sense?
In many cases, yes – when the project offers something that can be found nearly nowhere else.
Uninterrupted views, protected views, super prime location, etc.
And when a developer’s cost for the additional quality of building materials might be $300 per square foot, one can see why the high end is seeing a great deal of developer focus.
Creative Buyers in a Challenging Market
Let’s end on a fun note.
Living in a NYC cooperative myself, I enjoy receiving the marketing postcards of my colleagues and competing firms.
“Sold in 5 days!” “Bidding Wars!” “Purchased on the Spot!” “Right arm part offered as part of a Best and Highest bidding war!” Etc.
While seller expectations are high, buyers
certainly are doing all they can to win bidding wars.
I might add that if buyers continually are being outbid, it could be that they are receiving
less than stellar advice, or their tactic could require
review from a new set of eyes.
Bidding often depends on a buyer’s time horizon and confidence about
his or her
Buyers are getting creative trying to accomplish their goal of purchasing in NYC.
However, cooperatives aren’t condos, and sometimes condos aren’t even condos.
Buyers who want to use property as an investment need to buy condominiums!
The pressure of bidding wars causes buyers to back out of deals, or worse.
We must tread quite carefully these days, at times.
Here are some other fun scenarios I’ve encountered, both by buyers and sellers (or their agents) trying to work out deals:
1) Buying for undergraduates.
Loving parents want to purchase cooperatives for their 20 year-old child attending college nearby.
I’m sorry, even the most lenient coop doesn’t want that.
If they tell me it’s a pied-a-terre but their daughter is going to live there full-time, they are buying it for their daughter!
Another agent telling me definitively how terribly overpriced a property is, as they negotiate for one
buyer – and then eagerly bringing another buyer to the property.
Umm…what the agent is saying isn’t that it’s not worth the price, but that one buyer just won’t step up to it.
Thus, losing a little credibility.
3) Another offer magically appearing as soon as I submit an offer for a buyer.
I love this tactic.
It’s a fun one.
As prices go up too high, this often scares buyers away.
To be used with slightly more care and caution these days!
4) A buyer reducing an offer after an offer is accepted.
This generally sends major red flags and makes a buyer look untrustworthy.
Not an ideal strategy for a buyer to win a deal.
5) Offers with mortgage contingencies.
To be used with great caution.
Preparedness with the mortgage often is the best way to win a bidding war.
The contingency strikes fear in the heart of many a seller.
6) An agent getting angry with a low offer.
I often say, “This isn’t the real estate friends, it’s the real estate business.”
Getting offended by an offer makes no sense at all and doesn’t help put deals together.
Anyway – lots of market thoughts to share.
I hope that the rest of July is terrific for you, and I look forward to sharing more in August!
As usual, if you want to speak or meet in person to discuss your search, or know someone who would like to chat about the market, please put them in touch via phone (646-302-5710) or email! Thank you – Scott