Sensational articles sell newspapers, so there is never a surprise in the real estate section to read about the biggest deals, the tallest towers, the best of this neighborhood or that one, the best apartments, the smallest apartments, etc.
However, the New York Times finally landed on the realities which I’ve been writing about here for a few months.
Dwindling inventory and instead a pile-up of buyers.
They call it a “donut hole” in the market, between $1.4-2.3mm, where there is no inventory.
I would argue that the “donut hole” is wider than that, perhaps as wide as $800,000-$5mm.
I’ve touched on my recent new development experiences in a separate blog, but on that side, there is massive competition for 4+ bedroom units up to $5mm or more, with little to no inventory.
And on the other end of the spectrum, buyers looking for two bedrooms under $1mm are seeing nothing, either.
So if the donut hole is so big, where is the donut?
Here's the Donut Hole. Where's the Donut?
If there is one takeaway from this post (which I’m having fun with, if you can’t tell), this is it – This market has, for the most part, shifted to a seller’s advantage.
Buyers had their fun in 2009 and 2010, and perhaps a bit in 2011 as well.
And with purchasing power nearly three times (!) what it was in 2006, when we had 6-7% interest rates, buyers have the firepower to pay higher prices.
Certainly, deals are being done at the high end, with firepower on their own, with or without financing.
2012 will turn out to be the best year in the history of my firm.
With such small inventory, can 2013 match?
Volume will be down in 2013, but prices across the board will be up.
Finally, one-bedroom apartments will see appreciation and get closer to their highs.
There’s a slim chance that the new development closings in 2013 will catapult my firm, which focuses on the high end and averages nearly $2.5mm per transaction, to a new high.
But I am by no means sure about that.
Three-bedrooms buyers in the $2.5-3.5mm range on the West Side are seeing little inventory.
One bedroom buyers in the $750,000 range are seeing limited “winners.”
Additionally, across the pricing spectrum, buyers are finding that the time that has been built-in to make decisions on properties has shrunk.
A recently as last year, we had seen a trend, in which buyers might want to see everything in their price range before deciding upon a unit.
This seems so reasonable on its face!
Why wouldn’t
a buyer want to be fully educated?
The answer is when there is so little inventory that should they spend that time, everything they have seen, by the time they come back around, will be gone.
Of course, this is not completely true, with overpriced apartments, and units that have narrow appeal.
But the market feels more like a rental inventory than a sales inventory.
In the rental world, the inventory, for the most part, changes over almost completely every 4-6 weeks.
The sales inventory has continued to shrink, with higher price tags on what comes on in its place.
I’m reminded of an old Stephen Wright joke, in which he mused “I lost a button hole.”
In this dynamic and competitive sellers’ market, buyers need experienced advice now more than ever before.
Otherwise, they risk being lost in this donut hole forever.
Best case scenario is that rates continue to remain low for 2013, which everyone expects them to – and we see a substantial pickup in inventory.
My outlook is that we won’t see nearly enough inventory come on the market to satisfy demand, but an increase in inventory overall.
More to come in 2013.
Happy Holidays! -S