The Real World
Last week I was called by a reporter who wanted to discuss the possibility of an overstock of Manhattan condominiums in the $30 million to $50 million dollar market. I took the call reluctantly. It’s not that I did not know what to say – quite the contrary! I have been fielding calls from the press about the ultra-luxury condo market almost once a week for the past year. Will 2015 be the year of the $100 million sale, they want to know? Who will buy all those new downtown penthouses priced at $30 million? Were you to be reading the popular press, it might well appear to you that the entry level price in New York City is $15 million. It’s not.
The reporter and I agreed that both she and I would actually be much more interested in talking about how real New Yorkers live in New York. So we have made a date to do that. Here are some of the points I hope to make:
• For many New Yorkers, interest rates really matter. The low rates of the moment (last Monday saw the lowest rates in 12 months) absolutely make the difference between buying and renting for many buyers of smaller properties in both Manhattan and Brooklyn. An uptick of a half point would put them out of the market. This is one of the reasons the small apartment market is still so hot.
• Co-ops are the value play of the current market. Over the past few years, the schism between co-op prices and new condo prices has widened, having arrived anywhere between 20% and 30% on a price per square foot basis. The more restrictive forms of governance which co-ops impose, including limits on financing and renovation, have depressed their prices relative to new condos. Interestingly, older condos have more value in the marketplace than co-ops but less than new buildings, because their Boards are increasingly imposing regulations which limit an owner’s flexibility almost as much as co-ops do.
• The Upper East Side has morphed into today’s value location, especially east of Third Avenue. Properties in this part of town are now the best choice for those who have been priced out of the Lower East Side, Tribeca, and the tonier parts of brownstone Brooklyn.
• Almost no one wants to renovate. A decade ago, there was a difference but not an enormous difference between the price of a renovated apartment and an identical unrenovated one. No longer. Now the mint apartments sell both fast and at a premium, while those houses and apartments which need to be completely upgraded tend to linger on the market and require some discounting before a buyer can be found who is willing to take on the project. As noted above, this tends to be particularly true with co-ops, where restrictions about when and how a buyer can renovate can render the process both more time consuming and more expensive.
In November of last year, the median sales price for existing homes nationwide was $205,300. That won’t even buy you a room in the Manhattan market. Even with our high urban compensation levels, home ownership remains beyond the reach of a great many New Yorkers, while many of those who do enter the market have to make real sacrifices in other areas to do so. That’s our market in the real world. $30 million penthouses are to the work most agents do every day what the lives of the Kardashians are to the average TV viewer. There is entertainment value to such reporting, but let’s not pretend that it’s news.