August 1st 2013
Mann Report Residential
Contract prices are up in nearly every market sector and every location by a good 10-15% over last year, and an already accelerated pace of trading has been quickening steadily since the start of 2013. Although values are up, inventory is not increasing. When new properties come to market, buyers and their agents have been racing to open houses in the early weeks of marketing and bidding aggressively particularly for well priced homes under $3 million. An imbalance between heavy demand and tight supply persists, keeping Manhattan’s residential marketplace humming, and the trend is more than likely to continue for the rest of 2013 and well into 2014.
The thinnest inventory ever coexists with the largest pool of buyers ever where the attraction of New York real estate remains as a constant. The Big Apple is where people want to live and work and raise their children, where empty nesters wish to return, where out-of-towners fancy a pied-a-terre, where multinational companies require a presence, where start-up technologies find venture capital, where global billionaires covet a trophy showplace, where wealthy foreigners send their offspring to college, where international investors seek a hedge, and where foreign nationals desire a safe haven.
The upper end of the market continues to make splashy headlines with stories about pricey purchases at newly rising towers like 432 Park Avenue at 56th Street, 18 Gramercy Park South, and 56 Leonard Street in Tribeca, among others, whose spectacular prices won’t be recorded until they actually close. But the reality of local buyers paying up for new condominium construction is sometimes missed. Recently I attended a conference where developers Brodsky, Kushner and Zeckendorf each revealed that while 10-20% of their market were overseas buyers, the majority of their sales were either to Manhattanites trading down from larger apartments or empty nesters moving in from the suburbs or the U.S. rich buying second homes. While the perception is that foreigners are fueling current real estate transactions, the fact is our market is exceedingly strong domestically.
Is Manhattan real estate overvalued? Compared to other international cities, New York City is relatively affordable. According to a recent report by the London based Knight Frank, New York at an average $2030-2240 per square foot ranks 8th in a list of cities topped by Monaco at $5920 per square foot and followed by Hong Kong, London, Geneva, Paris, Singapore and Moscow. According to Knight Frank’s 2012 Wealth Report, 102 billionaires reside in Manhattan where 7500 residents have more than $30 million in assets.
Is Manhattan real estate overheated? Not according to bullish developers who are paying more than twice for land than they paid during the highs of 2007. Despite staggering $3000+ per square foot price tags, buyers are rushing to be “first in” before developers raise prices with new amendments to the Attorney General’s Office.
A boom in the city’s number of new development projects results from increased availability of construction financing. But that’s only part of the story. Developers are also building to meet increasing demands from buyers who ten years ago might not have considered buying a condo. In the 80’s and 90’s, when condominiums were scarce, you’d only suggest a condo purchase to someone who was unlikely to pass muster with a co-op board or who lacked an appetite for financial disclosure. In sharp contrast, today’s buyers are considering both product categories, often favoring new condos with full amenity packages.
Will the market face headwinds as mortgage rates rise? Maybe, but only in the segments most sensitive to rate increases like first time buyers. But even here, the reaction is muted and conflicting: while some buyers are pausing as the cost of borrowing increases, others are stepping up their property searches to lock in still historically low rates.
Pundits anticipate 2014 to be the best year yet for U.S. growth since 2005, with the housing sector leading the way with expected gains in all related fields from construction and financing to furniture and landscaping. Despite uncertainties on the macro level from worries about China and the U.S. Federal Reserve’s bond selloff and the resulting stock market gyrations, the long term outlook for NYC real estate remains robust. Ongoing low inventory levels will keep values high and velocity strong. This summer is actually an excellent time to sell. With supply so tight, there will be little competition for sellers who assume a contrarian’s position against any seasonal slowdown.
There are compelling reasons for buyers to buy now and for sellers to sell now. Come on in—the summer waters are fine.