MIDSUMMER REALITIES AND UNCERTAINTIES
Traditionally a slow month in residential real estate, August this year will no doubt show a drop in signed contracts from last spring, favoring the $2 million and under market while activity for larger apartment resales pauses as the upper end of the market heads to the beach. Here are five current observations.
1. The market under $2 million is HOT. I didn’t hesitate to list a new postwar two bedroom at the lovely Queen Anne co-op at 155 East 76th Street, because that market is smoking. Why wait when there are multiple examples of buyers crowding Open Houses for similar properties and competing to purchase this limited inventory product? One of my associates reported that in three days, more than 50 prospective purchasers viewed a comparable nearby property resulting in 6 bone fide offers. Another cited her Highest and Best Negotiation secured 4% above the ask for a similar apartment. So instead of waiting until after Labor Day, we hurried to prepare the space for its first Open House on the first Sunday in August, spending two days repositioning and editing furniture, streamlining closets and decluttering surfaces. Thirty four prospects signed in—hot on the trail for a well priced new offering including young couples looking for neighborhood public schools, parents buying for their adult children, and empty nesters trading down from larger apartments or leaving the suburbs for a pied a terre. All recognize today’s low mortgage rates won’t last forever so they are stepping up their property searches to lock in still historically low figures.
2. In stark contrast, the owner of a 7 room prewar on West End Avenue and I have agreed to hold off until September to begin marketing. We’ve taken the summer to do floors, paint, and ultimately stage the space with rented furniture. Priced around $3 million, the buyers for this home are for the most part families who have taken the summer off to vacation. While there’s certainly an argument to be made for the contrarian who lists in August, the stronger case in this and larger product segments is to hold your horses. Though competition will undoubtedly be stiffer in September since not much new inventory will surface this month, August seems to strip the market of any urgency to act as buyers hope patiently for new offerings.
3. Despite a steady run up in activity and prices for much of 2013 and the first half of 2014, buyers in nearly every category above $2 million seem to have stepped to the sidelines at the end of June. An analysis of a Luxury Market Report by Olshan which tracks contracts signed for properties with asking prices of $4 million and up shows that March and April were the most active months of 2014, with 219 and 157 signed deals respectively. Compare that to 117 signed contracts in June and only 90 in July. Interestingly from January 6th through July 27th, there were more than 2 ½ times as many condo transactions than co-ops deals: 193 co-ops (including 10 condops) compared to 502 condos. Without doubt, this relatively new buying pattern is a direct result of foreign purchasing in Manhattan.
4. The burst of new construction all over the city is staggering from skyscraper towers for billionaires to boutique buildings with less than 10 units. Encouraged by a renewed flow of construction money, rising sale prices and steady global demand, these new developments will come to market in the next 2-3 years, and more than 70% are expected to be priced over $2500 per square foot. The questions beg: Will too much new inventory flood the market? Will $3000 per square foot replace the old $1500 per square foot average? Can these levels be sustained?
5. Inventory of resale apartments, however, is likely to stay short for a variety of reasons. For one thing, those who refinanced when fixed rates were below 4% are unlikely to give up access to cheap money. Secondly, most homeowners can’t afford to buy a new residence without using the equity proceeds from their current home. Because of limited inventory options, they are likely to sell quickly but unlikely to identify their next step as speedily, so rather than risk becoming homeless, they stay put.
A seasonal August slowdown is not entirely unwelcome. It allows all—sellers, buyers and agents—to pause and regroup. When will velocity pick up again? Will the market face headwinds as mortgage rates rise? Inventory may bump up next month but probably not enough to bring high prices down. Stay tuned.