WARBURG REALTY SECOND QUARTER 2014 MARKET REVIEW
President, Warburg Realty
In each of the past two years, New York’s super-heated first quarter real estate market has slowed midway during the second quarter. This year has proven to be no different, as the attached charts on pending sales and days on market demonstrate: as pending sales trend slightly down, days on market for both categories are trending up.
That said, the difference in behavior between different market segments becomes more and more pronounced with each year. Not only are co-ops and older condominiums on a completely different trajectory from newly constructed condos, but also within the co-op market each price point demonstrates distinct sale characteristics. While condition and location remain critical elements in achieving a quick sale, pricing and size are now the dominant factors in most neighborhoods.
Today’s buyer feels anxious even as he overbids. While in 2006 the overbidder did so confident that the market was on a seemingly permanent upward trajectory, that confidence no longer animates the market in the long wake of the recession. Buyer reluctance has contributed in particular to hesitation at the upper end of the co-op market. It has become the norm for properties in the $10 million and over range to spend months, and sometimes years, on the market. More often than not pricing is the problem. Many sellers continue to be influenced by the thriving market in new condominium sales, believing that those price levels can bleed over into the co-op market. They can’t. Co-op buyers tend to be local and more cautious. They are not parking money like the Russian, Chinese, and South American billionaires who are buying the ultra-luxury condominiums, often from plans and often with no intention of using them for more than a few weeks a year.
The market remains heated in inverse proportion to price and property size. While many of the most expensive properties linger, those in the $3 million to $7 million range are usually absorbed in a matter of weeks or months, assuming always that they are well priced. Not too much competitive bidding at these levels, however. That frenzy is only apparent these days in the smaller units – priced below $2 million and offering good value relative to the rental market combined with an opportunity to leverage as much as possible at today’s incredibly low mortgage rates. And of course in Brooklyn, where almost every property excites multiple offers from the Heights and Williamsburg to Fort Greene, Park Slope, Windsor Terrace, Ditmas Park, and even Bed-Stuy. The demand for beautiful Brooklyn properties (and much of the housing stock in all these neighborhoods is really beautiful) continues to outstrip the supply so far that 100% increases in value over the past four years are not uncommon.
In every marketplace, even in the new condominiums, proper pricing remains the most important element in achieving a quick and successful sale. This reflects the buyer anxiety noted earlier in the report. Buyers feel risk-averse, even as they reach to afford the properties they want. For some, a couple of losses in competitive bidding situations drive them to the sidelines, sometimes for months, sometimes for years. Those who stay in the game don’t even want to look at properties which are outside a 10% window from their ideal price point. So an overly ambitious seller ends by sidelining his property, showing it only to buyers who expect more and losing the proper constituency because they don’t want to love something they cannot afford.
The period between Memorial Day and Fourth of July has in the past few years become an opportunity for the co-op market to take a breath, even as new condos continue to sell to the foreigners who flock here during the summer months. After a spike at the beginning of the year, supply in both the co-op and condo markets has been on a gradual decline even as absorption is slowing, demonstrating that very little new inventory is coming to the market.
So I anticipate that July and August will show a slower but still steady rate of deals relative to the early spring, with even less new inventory listed.
Now that we are an international city, those parts of the market catering to foreign buyers are active 12 months a year, while there is still some seasonality to the buying patterns of local homeowners. For all, after Labor Day new inventory should enliven the market and lead into a brisk fall selling season.