The Russians Aren’t Coming, The Russians Aren’t Coming

The expensive part of the New York City real estate market is taking a rest. Having been active for years, the buyers who were snapping up those $20 and $30 million condos and townhouses, not to mention the $15 and $20 million co-ops, have mostly retired to the sidelines, victims of…what? The August downturn in the stock market? Not really, since this trend had begun several months before that, and anyway the stock market, while rocky, has regained most of its mojo. A general falling off in prices of luxury items? The fall auction results don’t seem to indicate that, with both art and jewelry continuing to sell for top tier prices. I would opine that the issue more closely tracks the confluence of three factors: the enormous increase in product in these price ranges, especially in the condo market; the thinning out of the ranks of foreign buyers; and overly ambitious pricing. Let’s take a look at each of these factors individually.

As often happens in our marketplace, the timing of demand for a particular product and its availability on the market are out of sync. Several years ago, when the 57th Street boom was just beginning, demand for large glamorous new midtown condominiums appeared enormous. Agents vied for Russian customers, who were known to pay more lavishly than any other group, while also seeking Indian, South American, Chinese, and Korean buyers. Then economic turmoil in China and political complications in Russia slowed the purchasing velocity of both groups, at just the same time as a substantially increased inventory of ultra high-end properties came to market. Today buyers can choose between one hundred apartments priced over $20 million in Manhattan alone. And it seems there are not one hundred buyers for them. Supply has outrun demand.

2015 saw numerous global issues conspire to depress demand for New York real estate from foreign sources. It has been a terrible year for the EU countries, with the threat of Greek default hanging over the Eurozone and bringing the value of the Euro almost into parity with the dollar. With such a devalued currency, the enticement of owning a home in Manhattan resonates less for Europeans than at any time in the past decade. At the same time, the deep slowdown in the Chinese economy has caused not only worldwide shivers but also a slowdown in the stream of Chinese buyers to New York; that said, the Chinese have nonetheless been our most active overseas buyers during 2015. This year Russians were nowhere to be seen. The spigot simply shut off. Whether that is the result of economic problems at home, a greater difficulty in extracting money from the motherland, or a reflection of the increasingly fraught relationship between our two countries remains open to discussion. All I know is that, to revise the old movie title, The Russians Aren’t Coming!

Finally let’s examine the pricing lag. In our marketplace buyers always adjust faster than seller . When prices increase, buyers see it happening and they surf up the wave to get what they want. But when buyers back off, sellers tend to hang on, at inflated prices, hoping for the best. And then inventory begins to accumulate, which is precisely what we see happening in New York at the moment. The market at $4 million and under (and particularly that at $2 million and under) remains quick and active, while above $10 million weeks can go by without a single showing. In such an environment correct pricing means everything. Even a whiff of excess will keep buyers away.

In every market properties trade. But how fast, and for how much, is strictly a question of supply and demand. In today’s high end market there exists an imbalance which tilts toward supply. Although the vast majority of transactions in Manhattan occur below the $5 million mark, those at the higher end, especially above $10 million, tend to garner most of the attention and, as a result, to define the marketplace for local and foreign interests alike.  That story is changing and will continue to evolve in the months ahead. We’ll be watching!

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