Chief Executive Officer, Warburg Realty
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:
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.