The Inventory Logjam
Every week, my agents at Warburg Realty receive calls from anxious buyers, asking “Has anything come up for me? Isn’t there anything new you can show me?” I make our buyers the following solemn promise: we are NOT hoarding these properties for family members or customers we like better. In fact, we are as frustrated by the lack of inventory as you. So I thought it would be interesting to write about the ebb and flow of inventory, both annually and over the arc of the last decade.
New inventory is more likely to arrive on the market at three major points during the year: on or about January 15th, on or about April 1st, and on or about September 15th. These dates are somewhat variable, the latter two in particular, depending on the exact annual timing of Easter, Passover, and Rosh Hashanah. But generally speaking there is a post-New Year market, a spring market, and a fall market. Although the seasonality of our business has definitely declined over the last two decades, it is still rare for a major property to be placed onto the market in August, or the second week in December.
Of the three markets, the busiest is usually spring. Historically, the largest number of deals are consummated between April and June; prices also surge the most during these months. Mid-January, after the Christmas and New Year festivities decline, and September, at the end of the summer holidays, see less of a surge in listings than does the spring, but new offerings do often appear at these times.
The popularity of the spring market has primarily to do with the school year. For buyers with children, this is the moment to make a purchase which can then be spruced up over the summer and inhabited during the subsequent school year. And everyone’s real estate adrenaline flows a little faster in spring: daylight lasts longer, views look prettier, terraces feel more accessible.
That said, the flow of inventory has been constrained ever since the tax laws changed in the 90s. Until then capital gains from the sale of personal real estate could be rolled over from purchase to purchase over a lifetime; only when the buyer ceased owning or passed away were taxes due. When rollover was replaced with the $250,000 individual exemption and the $500,000 marital exemption on capital gains, that meant that for most of the country, whose real estate never generated a gain that large, the sale of a home became a tax free transaction. For New Yorkers, however, the new law proved onerous, especially for those who had been many years in the same home. With a low basis, and Federal, state, and city taxes amounting to over 27%, whether selling made sense was called into question. And for many owners of larger apartments and houses, that question still stands.
The impact of a slowdown in one segment of the market is profound. If owners of large properties decide that it is not tax-effective to sell, then those who want those larger apartments have fewer alternatives. So they renovate and make do in the homes in which they already live. A logjam develops; less selling at the top reduces the number of transactions all the way through the marketplace. This, to a greater or lesser extent, has been the reality of the co-op market for the past decade and a half. Those who have owned for many years often prefer to let their heirs pay the taxes, impeding the flow from the top of the pyramid.
And so we all wait, agents and buyers alike, for birth, death, job transfer, marriage, or divorce to create a chink in the dam through which a precious property or two flows down to those waiting in the tier below.