2016 Second Quarter Market Review

The second quarter of 2016 heralded the return of buyer leverage. After six years of chasing the market up, buyers finally felt re-empowered in the past three months. The market overall had a slow first quarter, with only properties at $2 million or below being too much in demand. As the market picked up in April and May, two phenomena manifested themselves: price reductions and a return to aggressive negotiating by our buyers. The asking price was no longer the floor from which to bid up; many deals were being made at prices between 5% and 10% below the ask. 

Another occurrence has also increased in frequency: the post-price reduction bidding competition. We have seen several examples in just the past few weeks. A property sits on the market for months, then the owner finally agrees to reduce the price. It doesn’t have to be an enormous reduction, just big enough so a different constituency of buyers will find it online. Within a couple of days, several of them bid on it, often at the new asking price. What’s so interesting about this behavior is that these buyers could easily have offered this price and been successful during the months the property was priced higher and engendered no activity. But they didn’t. Buyers won’t bid if they don’t see value at the ASKING price. Sellers frequently tell us to let co-brokers know that they don’t wish to reduce their pricing but are open to offers. It doesn’t work. Buyers need the clear value proposition right there in front of them if they are to engage. 

Another interesting aspect of the past three months has been a revitalization in the very high end marketplace. The combination of price reductions and price flexibility reactivated this market in April, and it has been building momentum. Significant sales above $15 million became more frequent in recent months after almost a year on hiatus, primarily in the new condominiums or older properties with full renovation. The buyers are primarily Americans, primarily hedge fund managers, with a smattering of South Americans, Europeans, and Chinese thrown in. No Russians!

Let’s look at the market segment by segment for a quick analysis: 

• Below $2,000,000 the market is still highly competitive, especially for renovated two bedrooms. These are the apartments you want if you are in your thirties, have a kid or two, but really don’t want to move out of town. 

• Inventory on the Upper East Side has been accumulating in the 5 to 9 room, $2 million to $6 million category. Most of these properties are co-ops, many needing renovation. Even when the price is right, buyers balk at a year of contractors and design decisions. 

• Harlem is still hot but getting so highly priced that absorption has slowed down. The same is true for Bed-Stuy in Brooklyn. In general, Brooklyn remains immensely popular but the escalating prices have narrowed the buyer pool and thus decreased the velocity of sales, especially in the northwestern and north central parts of the borough. More central areas like Ditmas Park, Windsor Terrace, and Bay Ridge are increasingly on the radar of younger former Manhattanites. 

• Prices on Central Park West are at all time highs, in part because there is almost no inventory. In general, West Side apartments and houses all the way up to Columbia remain highly sought after and rarely stay on the market long as long as the owners and agents price correctly. 

• Even with the uptick in absorption at the high end, the new condominium market is awash in supply. More appears every month. It will take a few years to see this supply, especially in the midtown corridor and south of Canal Street, fully absorbed. 

• Prices are escalating in Long Island City and we are seeing more former Manhattanites moving to Astoria, or deeper into the Queens luxury neighborhoods like Kew Gardens Hills.

In my memory, the boroughs have never seemed so close together. Increasing numbers of buyers feel at home looking in Brooklyn, Queens, and Manhattan. Every neighborhood has its charms, and increasingly all those charms possess broad appeal. It’s another form of buyer control: the willingness to neighborhood (and borough) hop to find what they want. As we arrive at the midpoint of 2016, the wide arms of the city’s many neighborhoods, for those who can afford them, have never felt so open.