The View from the Ground
This week I asked Warburg agents what they are experiencing in the New York real estate marketplace. While the replies varied somewhat, several major themes emerged which are both interesting and surprising. Here are the highlights:
• While in the first days the government shutdown did not seem to be making a difference, it has now begun to drag on the market. Uncertainty is always the enemy of action; people making big decisions want to feel confident about the future. The concern in the business community about the end of the Bloomberg era and the likelihood of a DeBlasio mayoralty exacerbates that sense of uncertainty. In such an environment buyers often hold back.
• Competitive bidding is still taking place for select properties. For this to occur, the three major factors: location, condition, and price, all need to be aligned. Just this past week-end a mint 1550 square foot property on the Upper West Side received 24 bids! It was priced right, in a great location, and completely renovated. Price and condition are particularly important, especially in Manhattan. In Brooklyn the supply/demand ratio is still so tilted towards demand that almost everything sells with multiple offers.
• Priced right, properties move fast. If the property is priced wrong, especially in the co-op market, it is likely to sit. All too many sellers read descriptions about penthouse sales in new condominiums and believe that information applies to their older co-ops as well. In fact the two markets are following very different trajectories. The high end co-op market remains stagnant, with numerous overpriced properties lingering on the market for months or even years. Often even price reductions fail to re-energize these properties after a long period on the market.
• High end sellers are often content to sit it out. With the enormous appreciations in real estate values in recent years, and the new tax laws which translate into paying the Federal, state, and city governments close to 35% of the capital gain, there is less financial incentive to sell a large, highly appreciated property. This contributes to the shortage of viable inventory in the marketplace.
• Buyer behavior is increasingly unpredictable. Often they will rush to bid high in a best and final, only to have second thoughts after succeeding and back out. One of our agents has had this experience with each of her three new exclusives: the high bidder backed out after a deal was struck and the property sold to the second or third in line. Other buyers are simply more hesitant or have more of a wait and see attitude. Still others know there is little inventory but are baffled and frustrated because when they analyze recent comparable sales they find current prices unreasonable, even as other buyers are paying them.
• Co-op Boards have displayed high expectations during 2013. Many buyers, even those with high income, do not have the sort of assets Boards want to see in a purchaser. These buyers, who often cannot afford the new condos which are priced at least 20% higher than co-ops or older condos, end up with very limited options.
• Many sellers are not negotiable, and certain properties ARE selling at 15% or even 20% above comparable sales from a year ago. The rapid price escalations during the first eight months of 2013 thus make it hard for buyers (and sometimes brokers! ) to keep up with the market.
• The busiest market remains that for properties priced at $2,000,000 and under. Excess inventory which existed earlier in the year has been absorbed, and Warburg agents dealing with these properties report that inventory is low and well priced one and two bedrooms in good condition move very fast. Often the buyers for these units have already lost one or two apartments by not offering enough; after a few losses they become more determined and aggressive in their bidding. At the beginning of the year we were advising buyers to go 5% over ask when bidding in a best and final situation. By May we were advising 10%. In the last two weeks we have had two buyers go between 15% and 20% above the asking price and STILL not succeed.
• The condo market south of the mid-60s has a life of its own. Foreign buyers, especially from the Chinese mainland and Taiwan but including Europeans, Brazilians, Russians and Koreans, seek mid-priced investment properties in both new and established buildings. The supply of foreign money seems inexhaustible.
• Open Houses in the under $2,000,000 price range are thronging with brokerless buyers. These buyers are rarely knowledgeable or strategic enough to be successful in competitive bidding situations.
Today’s market displays complexities which are unique in my memory. Neighborhood, property type, price range, condition, time on market all combine to render each transaction unlike the one before. Buyers and sellers need both careful analysis AND bold behavior to achieve their objectives. And, like never before, they need a skilled agent to help them navigate this fast-paced and multi-layered environment!