January 1st 2013
Mann Report Residential
There’s plenty of data available to support a U.S. housing recovery even in areas that were hardest hit by the downturn like Miami and Phoenix. New residential construction is on the rise nearly everywhere, and home builders like Toll Brothers, DR Horton and Lennar have been posting significant gains monthly since October 2011. While the housing market indeed is improving across the nation, New York City continues to dazzle as it attracts not only foreign buyers who have found safe haven for sovereign money, but the brightest and the best who make NYC their home.
Demand remains strong in all segments of the market. At the top end in the over $10M category, trading volume and price levels have been climbing steadily since the second half of 2010, following a two year activity hiatus after Lehman’s fall when lavish spending was considered ostentatious. In sharp contrast, today those with the greatest wealth from the U.S. and around the world are buying with enormous confidence. While some seek a hedge, others are purchasing primary shelters and second homes. Many, in fact, are buying from plans again even before sales offices and model showrooms open officially. Beginning in early 2012 with sales at the Touraine, a 15-story Toll Brothers condo at the corner of East 65th and Lexington Avenue, deep pocketed purchasers have resumed signing contracts uptown, downtown, east side and west, even before they walk the actual spaces.
In the mid to high range, a lack of resale inventory is the overriding concern. A short supply will probably contract even more in the near term until owners settle into the new reality of changing tax laws.
Owners of larger residences have hit the pause button and are staying put. Warburg President Frederick Peters predicts, “It’s likely to get worse particularly…where tax ramifications are virtually holding inventory hostage. Facing the prospect of huge capital gains, sellers would rather hold onto their rambling apartments and have their heirs deal with the taxes.” When an already thin supply of 4 and 5 bedroom apartments shrinks even more, 3 bedroom dwellers have fewer purchasing options so they don’t list their homes narrowing the choices for 2 bedroom buyers. This spiral however translates into good news for sellers who price their homes realistically as it stimulates competitive bidding from inventory starved buyers. The tight local stock also works to mitigate the impact of global uncertainties.
Even if current historically low mortgage rates creep up slowly this year, rents are expected to remain high increasing buyer interest for one and two bedrooms. Like their parents and grandparents, Gen X and Y believe in home ownership to build equity. Lending requirements however remain tight and will probably not ease up any time soon. Reviews and re-reviews of both the borrower and the property are as stringent as ever. In an effort to stop overleveraging and the giving of bad loans, regulators have altered the financing landscape measurably and have actually inhibited borrowing for many.
On the other hand, money has increased for venture capital. According to the social media news blog Mashable, funding for new start ups in New York is up by 40%. Moreover, a rapidly expanding tech sector now challenges Silicon Valley’s dominance as prominent companies like Facebook, Yelp, Tumblr and Foursquare follow Google’s lead and set up shop in The Big Apple. A presence in New York for businesses, both national and international, has always been important, but never more so than today when it seems to be a requisite for success.
On the educational front, plans have been approved for the building on Roosevelt Island of Cornell NYC Tech—the Bloomberg inspired joint venture between Cornell University and Technion-Israel Institute of Technology. Although the first phase of the graduate school won’t be completed until 2017, classes begin January in temporary space donated by Google at their Chelsea headquarters. “By adding a new state-of-the-art institution to our landscape,” notes Mayor Michael Bloomberg, “we will educate tomorrow’s entrepreneurs and create the jobs of the future… [and] make New York City home to the world’s most talented workforce.”
According to the most recent census, New York’s population of 8,244,910 is expected to grow to 8.7M by 2020 and to 9.1M by 2030. Unique among the world’s cities, New York attracts a vibrant populace—those who seek opportunities in learning and business, those who respect innovation and entrepreneurial spirit, those who strive for a quality of life, those who seek safe haven and also those who desire to show off their trophy homes. Fueled by a confluence of factors including a deep buyer pool, New York real estate continues to outperform the rest of the nation feeding an appetite for both residents and investors from around the world which is bound to grow even stronger.