2018 is over and what a turning point it may have been for real estate in New York. While the volume is relatively high, as are the values, there was a definite downturn in most of the city, dramatic in some areas, while only a few areas continued to rise in price. Or as Corcoran CEO Pamela Liebman phrased it in a NYTimes article, “Sales are not slow—they are just not unusually high. It’s like we came off the autobahn: It feels slow relative to the last three or four years, but historically it’s not.” So after several years of strong growth, it is perhaps natural and a slowdown is needed.
A quick look at some 2018 statistics:
- In his Q3 Market Report, Frederick Peters, CEO of Warburg Realty, reported that “Offers 20% and 25% below asking prices began to flow in, a phenomenon last seen in 2009.” The report goes on to say that “Our agents struck these deals at prices anywhere between 7% and 12% below equivalent sales from a year before”.
- Upper East Side townhome sales dropped 48% in the second half of 2018, as did the prices, as per a report by Stribling and Associates.
- NBC New York reported that Manhattan real estate sales “fell by 11% from the 3rd quarter of 2017 to the third quarter of 2018”.
- The average Manhattan apartment price dropped almost 5% from 2017, to $2.06m from $2.16m, according to a market report by CityRealty.
- But, according to Douglas Elliman and Miller Samuel, Manhattan home sale prices dropped even more, down 14% to the year prior and the largest drop since 2009.
- In Q4 2018, median price for an apartment dropped below $1m for the first time since 2015.
- Q4 was also the fifth-straight quarterly drop in the number of sales.
What can we expect for 2019? Anyone who says that the know for sure will almost certainly be proved wrong at some point. There are a whole host of issues in play, some negative and some positive for sales. Here are some of them:
- 2017 tax law change comes home to roost. NY (and all nationwide) homeowners will find that their home mortgage deduction has been capped at $10k when they do their taxes. A new mortgage of $500k will include more than $10k of interest in the early years of the loan, and the median price in NYC is almost $1,000k.
- Interest rates are rising, if slowly, and are shrinking the amount home hunters are able to spend buying a home.
- Supply continues to grow—Current construction of multi-family units is up 70% over a year ago; a total 32,580 multi-family units filed with the DOB in the last 365 days. And the year before was significantly up from the year prior.
- The economy is cooling down; by how much depends on who you ask. The Federal Reserve projects 2.3% growth vs. 3.0% in 2018 for a variety of reasons; including uncertainty caused by trade issues and world-wide slowdown of real estate sales.
- Chinese investment in NY real estate has dropped off significantly, due to new restrictions their government has adopted on capital outflow. Total international share of Manhattan residential sales dropped to 20% in 2018, down from a high of nearly 40%.
- On the plus side, Amazon’s selection of LIC as half of HQ2 may add up to 25,000 jobs in NYC over 10 years; and Google is also increasing their headcount in NYC by as much as 9,000.
- The biggest beneficiaries are projected to be LIC, Astoria and the communities in Queens with easy subway access to LIC, as per PropertyShark. Those communities include Jackson Heights, Elmhurst, Corona, Flushing, Richmond Hill, Forest Hills and Rego Park.
- Perhaps as a refuge from high Manhattan prices, Queens home prices are actually still rising according to Steven James, CEO of Douglas Elliman. Median sale price was up 1.6% and several price per foot records were set in 2018.
- Rising interest rates may actually jump start some home buyers, who decided to buy before rates go any higher as they are still fairly low historically.
- NY and National unemployment rates are at or near all-time lows and show no signs of increasing.
- A switch from a Seller’s to a Buyer’s market historically has pulled some buyers into market as prices stall or drop.
- According to Stephen Jen, CEO of his own hedge fund, “. . . Since property prices had gone too high, the incipient price correction – assuming it is modest and gentle – may perversely lead to an increase in consumption”.
- Prices in NY real estate have risen 35% or more since 2009 ( per CityRealty ) and anyone who bought a home prior to 2009 has had dramatic gains that could be captured by selling at current levels.
- Sellers may accept that they aren’t able to get what they hoped as their property sits unsold.
Summing up all of these different data points isn’t easy, which has been described as a “Lessen in Fluidity. . .” by CEO World Magazine. But I will try.
First of all, the news is much better in Queens per several of the points above. Queens is perhaps the best borough of the 5 to invest in real estate now, with a strong combination of growth and easy Manhattan access.
If you bought 5 or more years ago, you really could sell for a significant profit but perhaps not as much as you hoped for. Would you turn down a 35% profit in less than 10 years? Probably not.
If you want to buy, you have to understand that you may not see the quick appreciation we have seen the last several years, but you can still make a sound investment as long as your realtor and you do your homework and pay the appropriate price. No steep drop is being predicted and desirable real estate rebounds over time, if it ever drops. If you want to buy and sell quickly for a profit, this likely isn’t the best time unless you can find a property that is significantly underpriced now.
There are also always some local issues that can drive prices up despite national or metropolitan headwinds, such as the Amazon move, Opportunity Zones in the tax code, places with limited inventories, etc, etc.
Your local realtor (that’s me!) can help you find those opportunities in this time of change and flux.