From ostentatious oligarchs to headstrong hedge-funders, from $90 million condominium penthouses to tiny $250,000 studios, 2014 was a year of new players and abrupt changes in New York City’s real estate market. The different market segments continued to chart their separate paths, growing away from each other as the year progressed. The glamorous end of the newly built, high-priced new condominium market enjoyed record prices, even as many of the less prime units in these luxurious new towers languished on the market. The market for small units, both co-ops and older condominiums, remained extremely strong as low interest rates continued to create a better value proposition for owning than for renting. And for the larger co-ops, even in the prime locations, pricing and condition asserted themselves as the primary drivers of sales.
Because condition has assumed such an important place in the marketability of older units (not to mention one of the primary attractants for buyers of newly built residences), staging has proliferated throughout the marketplace in 2014. Buyers seem to possess neither the ability nor the patience to try to imagine how a property would look without those old curtains, musty sofas, and threadbare carpets. Nor can buyers sense the scale of rooms which have been denuded of all their furnishings. So New York is gradually coming around to the perspective which has been current in California for years: stage it! Paint it white, bring in light contemporary pieces, and make it easy for ANYONE to imagine themselves in the space. The frequency with which apartments are staged, and the way staging cuts time on the market, are definitely among 2014’s biggest real estate changes.
The need for staging manifests most clearly in larger, older co-op properties which have not been renovated for many years. Fewer buyers each year want to undertake the scope of work a 3000 or 3500 square foot renovation requires, and this becomes particularly true when co-op Boards restrict the hours of work, the scope of the project, and the time of year when it can be undertaken. As a result, 2014 saw many fine old apartments in top buildings along both Park and Fifth languish on the market awaiting a buyer willing to pay a substantial price and then invest sizable additional funds and a year or two getting the property into shape. Since so many of the prewar co-ops, especially the larger ones, require remodeling, this reluctance on the part of buyers has slowed this market considerably during the second half of this year.
In general, the price fatigue which we began to see in the buyer population around Memorial Day has carried through the second half of the year. The number of competitive bidding situations has dropped precipitously, and when they do take place (mostly for units priced at $2,000,000 and under) there are fewer bidders. The frenzy which characterized the first quarter (and half the second) of this year has dissipated, regardless of neighborhood or borough. There is more inventory available (though still not a lot) and mostly buyers can now take a little time thinking about a purchase before they make it. As the attached chart from Urban Digs shows, average time on the market has moved from a low of about 47 days in the spring to 70 days by year’s end.
As to 2015, I believe that we should not expect big changes. Inventory in the resale market will remain low, if not as pinched as it was during much of 2014. Buyers will continue to want real value for their dollar, so price and condition will continue to be the key drivers of demand. Many properties will languish on the market, as they have during the second half of this year, especially those which are neither mint nor very well priced. If interest rates begin to creep up, they will only exacerbate the tendencies described above.
At the same time, many new ultra luxury condominiums will come to market, on the 57th Street corridor and elsewhere. While I believe New York will retain its status as a haven for flight capital from around the globe, there is a limit to how many $30 or $50 or $75 million properties can be absorbed, and I suspect we may be approaching that limit. So on the new condominium front I suspect 2015 may be the year of the quiet incentive. Developers tend to resist negotiation (although I believe that will be taking place as well), so they are most likely to incentivize buyers by agreeing to pay transfer taxes, or lawyers fees, or customize the properties. And there will be price reductions, packaged however cleverly their marketing departments can manage.
We are essentially in a healthy market. Price escalations have slowed, and buyers have regained leverage in many negotiations. In this environment, brokers motivate the parties and make the deals. That’s why we are here.