Frederick Peters
President Emeritus
This week brings to its conclusion a real estate year very different from its predecessor. For the first time in almost a decade, we saw the Federal Reserve increase interest rates just two weeks ago. While this .25% increase is unlikely in and of itself to affect real estate mortgage prices too much, it signals a change in the Fed’s perspective on inflation and the economy, with additional increases likely as the subsequent quarters go by. The ultra luxury condominium market, which has generated headlines for years with its seemingly unstoppable velocity, has already slowed enormously, its loss of momentum a reflection of changing realities in both Russia and the Eurozone.
Chinese buyers have continued to purchase heavily throughout 2015, with their preference for views and smaller units dictating typical purchases below $10 million (with a few notable exceptions.) At the same time, gentrifying areas of the city saw significant increases in both value and market popularity, with the Brooklyn phenomenon extending more deeply into Crown Heights, Bedford Stuyvesant, and Prospect Lefferts Gardens, the Queens phenomenon solidifying in Long Island City and Astoria, and the Manhattan phenomenon extending more and more deeply into Harlem and Washington Heights. In none of these locations is it now possible to buy a house for under a million dollars, with most of the stock now well above $1.5 million. This would have been impossible to imagine even ten years ago.
This expansion points to a critical fact of the market as it has evolved over the past year. While we remain, and will continue to be, an investor marketplace for buyers from around the world, the primary driver of 2015 business has been local residents. This is reflected in the strength of the marketplace for properties under $3 million, with particular emphasis on the $2 million and under co-op marketplace. At this level, many properties received multiple bids as demand continued to outstrip supply. Meanwhile, so many newly constructed units were listed each month at $15 million and above that supply in THAT marketplace exceeded demand by greater and greater percentages.
Curb appeal and appropriate pricing continued to be particularly powerful drivers in 2015. Properties must make an attractive first impression to appeal to busy buyers who may lack the time to renovate or the eye to see what the property COULD look like. These buyers also have more options in this era of the new condominium; it’s no longer necessary to renovate in order to acquire a perfectly presented new home or pied-à-terre. So while mint condition both elevates prices and diminishes time on the market, staging has become a critical tool in every agent and seller’s toolbox for those properties which need upgrading. It’s amazing what a coat of white paint and some updated furniture will do for an unrenovated apartment or house. I like to say to my agents that the look which used to telegraph “old money” now just telegraphs “old”! Old wood furniture (or “brown furniture” as it is now being called), brightly patterned wallpaper from the 1970s or dark lacquer on the walls – this sort of décor increasingly slows down a sale and depresses the sales price.
By the same token, even a great renovation and a simple color palette cannot make an overpriced property sell. While sellers often ask why buyers don’t just make offers on these overpriced properties, the fact is, for whatever reason, they don’t! Today’s buyers are sophisticated and have done their own price per square foot analysis using data from the numerous available public websites. They simply won’t overpay, and often they prefer not to even view a home which they perceive as excessively priced. The most successful sales remain those where the property reaches the market priced a bit under its actual value. Twice in the last couple of weeks (in December, when the market is supposed to be dead) we have listed properties 2% or 3% under market and seen them surge 10% or more over these prices, exceeding both our sellers’ and our own expectations. Less is more.
As we move into 2016 I anticipate a similar market. Co-ops will continue to offer unsurpassed value for those who can tolerate (and pass) the social and financial exigencies imposed by their Boards. Unrenovated properties will sell low to compensate for the time, money, and uncertainty involved in bringing them into the 21st century. Ultra luxury condominiums, especially south of 14th Street and in the 57th Street corridor, will suffer from intense competition and slow absorption as inventory increases against a small and cautious buyer pool. This demand for homes costing $2.5 million or less reflects the needs of New York’s ever increasing professional class, needs which are not being addressed by most of the super-costly new construction around town. Lower priced properties in all the boroughs will be in short supply and continue to sell fast with multiple bids.
No doubt the 2016 market will have a few tricks up its sleeve; it always does. But there’s only one New York, and our urban population grows every year as more and more people decide to make our city their home. Demand for real estate will remain strong, with what were once considered “the outer boroughs” playing a more and more integral part in housing young people, couples, and families who would once have never moved outside Manhattan.
Wherever you live, the entire Warburg team and I wish you peace, happiness, and great real estate in the New Year.