July 8th 2013
The second quarter trajectory of New York real estate fell into two distinct categories this year: before the Memorial Day holiday and after it. While there continues to be competitive bidding for some well-priced properties, the turn into summer represented by Memorial Day weekend removed much of the urgency from our marketplace, just as it had two years ago. So in analyzing the quarter we need to look at April and May as one marketplace and June as a subtly different one.
The quarter began with a bang. Resale inventory has remained at record lows, and there is not enough new construction to close the gap. Strong activity drove the markets almost regardless of property class; one of the distinguishing characteristics of April and May was the increased interest in smaller units. One bedroom apartments, which had lingered on the market during much of 2012, began moving off the shelves earlier this year, and that trend accelerated in the second quarter. The two bedroom market, both prewar and postwar, was on fire. Standard four and a half room apartments in postwar buildings on Third Avenue have seen 80 people at first open houses followed by six or eight offers within 48 hours. And it seems that every property in Brooklyn attracts a horde of buyers who must have it. From apartments to houses, the prices in Brooklyn have risen at dizzying rates since January 1, with some areas seeing overbids of 15% or more on homes which were fully priced to begin with.
Interestingly, the activity has been somewhat more muted at the upper end of the co-op marketplace. These properties, for which the buyers are generally New Yorkers, trade only when they offer a clear relationship to the purchasers’ expectations of value. It is not unusual these days for the units at the top of this marketplace to be on the market for 20, 30, even 50 weeks before finding a buyer. This is particularly true if they require renovation. In many of these buildings, with their summer work rules, renovation can add two years to an anticipated move-in date.
Agents see an increasing bifurcation between the co-op and condo markets, resulting from the huge foreign investment pouring into condos but not appropriate for most co-ops. Such buildings as One Fifty Seven and 432 Park are demonstrating again the enormous appetite foreigners have for ultra-luxury midtown property. Sales are also booming at Carlton House on 61st and Madison, while the fabulous ceiling heights and finishes at Walker Tower, on West 18th Street, have shattered previous price-per-square-foot records in Chelsea. At the same time, sales have been slower at 530 Park, 737 Park, and 150 East 72nd Street, where buyers have been less enthusiastic about layouts or ceiling heights and have felt that the pricing was excessive. Today, even with the huge influx of flight capital into our city, it seems developers have to get it exactly right to achieve the highest prices.
As in 2011, the market took a bit of a breather after Memorial Day. That is not to suggest that transactions ceased occurring, merely that the pace slowed and a certain amount of urgency departed the marketplace. Open house attendance dropped substantially (though that has tended to mean that now a first open house sees 20 or 30 visitors rather than 60 or 70) and the offers are a little slower coming in. That said, properties with strong perceived value are still receiving multiple offers, and my agents are still spending their days putting together best and final financial packages or reviewing letters of introduction from buyers. The change is mainly in feeling – buyers are more prepared to take a little time to review their options. And many sellers, reading in the media about huge price increases and marquee deals (which often have absolutely nothing to do with the sub-markets into which their own properties fall), are pricing far ahead of the market, thus slowing the pace of sales as buyers wait for the price and the reality to come more into alignment.
During the summer of 2012 the pace of sales never flagged; we had our busiest August ever. I don’t anticipate that level of activity this year. Real estate is once again being purchased by multinationals and locals alike as a bedrock alternative investment, and buyers prefer, if the market permits, to make deliberate choices about such investments. I think July and August will see steady activity, still driven by lack of inventory in most property classes, leading into a brisk fall. Economically the worldwide situation, although improving, remains uncertain, and New York, more than ever, is a vibrant national and international center. What we see here today is not a bubble. The purchase of New York real estate represents a deliberate decision to invest in an asset class, scarce and well priced by international standards, providing a hedge against the volatility of the bond and securities markets. And there’s a bonus: you get a great place to live!