December 2019 Market Updates

Market Insights, Year End 2019

When you see in the press how many challenges that New York City real estate faces, it is easy to assume that a dramatic pricing shift is about to (or is happening) happen and the best thing to do is just to wait and see what happens. And that sounds like a prudent action to take.

Just some of the issues facing the NYC resale market:

For the first time since 2012, international investors sold more NYC real estate value than purchased; as per Real Capital Analytics.
- The capital restrictions put in place by China to pull capital investment back into that country, or not let it out. Now, any one person can only send $5,000 a month outside of the country. Not enough to buy a small studio anywhere, and Chinese investments in NYC real estate dropped 74% vs. the year prior, as per CNBC on August 19th
- Investment from Singapore dropped 55% from 2018
New York enacted an incremental “mansion tax” on properties that cost more than $2 million, effective July 1 of 2019. There was a rush to close properties over that price leading up to the change that condensed months of sales into May and June, leaving a depleted buyer funnel afterwards.
- The new tax is progressive and reaches 3.9% in the top bracket
The tax reform rushed through at the end of 2017 capped SALT deductions at $10,000 where many New Yorker pay much more in State And Local Taxes; which could affect how much home any new home buyers could purchase.
Mortgage interest deductions were reduced in the same legislation to prices below median and average home sale prices in Manhattan (new mortgages deductible only up to $750,000)
Manhattan has been through a 6-year explosion of luxury high rise construction that has left 25% of 16,242 luxury condos built since 2013 unsold, as per Curbed on September 13th
On the plus side, the Federal Reserve has lowered interest rates 3 times in 2019 in reaction to possible signs of a recession.
- That appears to be a double-edged sword as the cuts indicate that there could be economic problems ahead

Put that all together, it sounds horrible and indicates prices are going to crash. But, looking deeper in the data, there are submarkets are performing very differently. Manhattan is its’ own market and while Brooklyn has similar resale challenges, the high prices in those boroughs are benefiting Queens as affluent customers flee those boroughs. Both resale and rental prices are increasing in Queens.

Even the rental market is increasing, price-wise in Manhattan. While the condo development has been slanted towards the very end in New York, there has been consistent new development and upgrades to existing rental units in Manhattan that are leading to overall higher prices; in addition to potential buyers choosing to rent while waiting to see what happens for purchase prices.

Some specifics from Streeteasy, from an article titled “Rents Rise at Fastest Pace in Four Years as Fewer Landlords Cut Prices”

Landlords have figured out that would-be buyers are waiting for prices to come down so that they are renting in the meantime; and landlords are offering fewer discounts due to the high demand.
October data showed the lowest level of discounted rentals since 2015, with only 17% of Brooklyn, 18% of Queens and 23% of Manhattan were discounted; all less than the year prior.
Manhattan rents reached an all-time high, that rental index up to $3,315
Home resale prices dropped 4% in Manhattan, while transactions were down much more dramatically.
Brooklyn rents rose at their fastest pace since 2015, that index up to $2,720.
Home prices in Brooklyn were unchanged vs. 2018.
Queens rents reached a record high, that index up to $2,202; up 3.4% over 2018.
Home prices remained unchanged from the year prior in Queens, with the lowest amount of home prices reduced in NYC; only 12.4%.

In another Streeteasy article titled “NYC Sales Inventory Hits Record as Sellers Refuse to Ease Prices” the author laid out the facts of rising supply but stubbornness from sellers. From the Streeteasy Article:

“The number of homes for sale reached new highs in Brooklyn and Queens and jumped to near-highs in Manhattan”, according to StreetEasy’s Q3 2019 Market Reports [i]. This latest data shows no imminent change to the gridlocked dynamics of New York City’s sales market, where stubbornly high asking prices, especially in Manhattan, have driven away many potential buyers.

The increase in for-sale inventory also means greater competition among home sellers. But those sellers are not responding with more price cuts: the share of listings with a price cut remained basically unchanged from last year. In Manhattan, this figure fell to its lowest level of 2019, with 23.7% of sellers offering a discount. The share of price cuts offered in Brooklyn rose just one percentage point to 22.3%, and it remained about the same in Queens, at 19.3%.

Nor are sellers willing to meet buyer demand with deeper discounts. The median size of price cuts in Manhattan, Brooklyn and Queens remained unchanged since last year, at 5.3%, 5.1%, and 4.3%, respectively.

Still further signs of a lagging sales market can be seen in price growth. In Manhattan, the StreetEasy Price Index [ii] fell 4.4% to $1,093,562 — its lowest level since 2015. In Brooklyn and Queens, price growth was essentially flat. These figures, calculated using data on home sales that closed, show that the sellers who priced their homes at more realistic levels were the ones who found buyers.

“Most sellers are still refusing to bow to the buckling market, causing would-be buyers to turn to the rental market, where they are finding a lot to like,” says StreetEasy Senior Economist Grant Long. “Until sellers recognize that prices are not what they once were, those with the means to buy will continue to play the waiting game from the comfort of their rental. With job growth in the city continuing to support demand for homes, we expect to see an unusually competitive winter in the rental market, including likely record rates of rent growth.”

See below for additional sales and rental market trends across Manhattan, Brooklyn and Queens.

• The StreetEasy Manhattan Price Index dropped to $1,093,562, a 4.4% decrease from last year. Prices fell the most on the Upper East Side [iv] — down 4.8% to $955,277.

• There were 915 more homes on the market. For-sale inventory increased 7.7% in Manhattan from a year prior, pushing the total number of homes for sale to just under 13,000.

Q3 2019 Key Findings — Brooklyn

• Prices remained the same. The StreetEasy Brooklyn Price Index remained stagnant at $699,813. In Northwest Brooklyn, prices fell 3.2% to $1,054,950.

• The median price cut remained unchanged year-over-year. Brooklyn sellers offered a median of 5.1% off their asking prices.

• Inventory reached an all-time high. Sales inventory increased the most in Brooklyn out of the three boroughs analyzed — up 12.4% from last year to 8,170 homes.

• Rents rose at the fastest rate in the city. The StreetEasy Brooklyn Rent Index jumped 3.9% from last year to $2,712 — the fastest rate in the city and the fastest in the borough since 2015.

Q3 2019 Key Findings — Queens

• Queens sellers offered the fewest price cuts. The share of price cuts offered by sellers was the same as last year at 19.3%, the lowest of all boroughs analyzed.

• Price growth slowed to 2013 levels. Prices in the borough remained stagnant at $510,499 — but overall price growth was the slowest in six years.

• Sellers offered the smallest discounts. Queens sellers cut a median of 4.3% from their asking prices, a level unchanged from last year.

• Sales inventory jumped to a record high. The number of for-sale homes increased 11.2% in the borough to an all-time high. In Northeast Queens [vii], inventory rose 19.9%, the most in the borough.

• Rents reached record highs. The StreetEasy Queens Rent Index increased 3.3% to $2,200, the most significant jump in rents in the borough since 2016.”

So, if you want to take a wait-and-see approach to purchasing a home, it could a wise course of action, particularly in Manhattan. But don’t expect a deal on a rental as you wait it out; thousands of others already have and the supply is not plentiful.

If you are expecting prices to fall in Queens, you could be in for either a long or futile wait. Prices in Manhattan and Brooklyn will need to find their balance and where they fall out will determine what happens in Queens. If it is still significantly cheaper than those boroughs, and perhaps with a less crowded and greener environment, getting more desirable as people learn more about it.

Another fact about Forest Hills and Forest Hills Gardens is that they are both relatively small and are already fully developed. Supply in Forest Hills has only a small ability to expand and much of it is zoned for midrise (maximum 48’ height) and any new building has to go through an arduous process of getting an exemption. To be fair, a few new buildings have gone up such as The Aston, Sunrise Forest Hills and The Windsor; who bought property, demolished the existing buildings and built up after getting exemptions. There is also a new rental building going up by the Post Office but all of these properties combined add maybe 500 new apartments in an area with a population of around 90,000; just not enough of an increase in supply to impact pricing.

Forest Hills Gardens has only a handful of buildable lots left and neither the residents nor the homeowners association would allow large-scale development, so supply is essentially capped at the current level. There will not be a glut of new housing in The Gardens that drives prices down. Lastly, the limited supply, in additional to the beauty and desirability of the area, make any steep price drop unlikely in The Gardens.

Bruce Eaton

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