Officially our recession is over. That said, there was more to our recent economic woes than bad mortgages. Too much borrowing by everyone – the Federal government, investment banks, individuals -, a NIMBY attitude towards any sort of economic pain inherent in realigning debt with equity, and the difficulty of competing with incredibly cheap third world labor in our globalized marketplace, all have their part in bringing us to our current economic identity crisis. And we are seeing a similar scenario play out in other nations around the world. So what does this mean for our local real estate marketplace?
First, condos, especially the prime buildings and locations, will be more in demand than ever. The US is still seen as a safe place for money, and buyers from all over the economically destabilized world want to park money here. The recent sale at 15 CPW for $10,000 per foot is only one of numerous examples, although the price is unique. But large units in ultra luxury condo buildings all over town are seeing multiple offers as Russian, Korean, Chinese, European and South American buyers compete for them. Alongside this phenomenon we still see an overhang of smaller condo units from the overbuilding of the last few boom years. Increasingly these units are moving from the rental market, where the developers had parked them while there were no purchasers to be found, back into the sale inventory, where they are being absorbed when properly priced. Increased sales activity in FiDi, Harlem, and the East 20s attests to this. This market for smaller units is at least as likely to be domestic as foreign, and buyers are shopping price point more than anything else. My prediction is that this inventory will be substantially absorbed within 12 to 18 months, and then what? The city’s population is growing but very little is being built. We will move from glut to scarcity – the only condos for sale will be resales. That will put upward price pressure on the existing condo housing stock.
We are already seeing that upward price pressure in the co-op market, especially at the higher end. Admittedly there has been enormous price capitulation in the past two years. But here too the excess inventory has mostly been absorbed and buyers have returned to the marketplace, eager to take advantage of the new pricing. And very little is for sale. Each appropriately priced new listing, whether 7 rooms or 12 rooms, receives a flood of visitors and often multiple offers in the first few weeks. There is far more demand than supply. That said, the dynamic of this process is very different from 2007. Almost no-one pays more than the asking price. Buyers are cautious and care a lot about value, even in the most expensive properties. I do not expect that this situation will change much as 2011 unfolds. Buyers will continue to be astonished throughout the year that there isn’t more to look at.
In 2011 we need to begin to get our national and individual debt/equity ratios back under control, so banks will lend money and creditworthy buyers will have access to it. We need to incentivize our developers to build so we can accommodate the growing population of our city. We need appropriate taxation, Federal, state, and local, which will pay for what we need but will not drive business and opportunity away from New York. We need inventory to sell, and purchasers to buy. And, of course, brokers to manage the process!