There seems to be a lot of news pointing to the imminent fall of the New York City real estate market and the housing market in general. Is this true? Is that forecast for the entire market or for specific segments of the market?
One seemingly indisputable consensus is that the ‘Super Luxury’ market is already correcting and that this trend is far from over. Skyrocketing land prices and a seemingly endless supply of foreign money, pouring into the city post-Lehman, lead to rampant over-development in the luxury sector. There is now an oversupply of this super high-end inventory, typically thought of as $10 Million and up. At the same moment, the international locales that were fueling the luxury bubble have imposed incredibly tight restrictions on currency leaving their respective nations. This coupled with macroeconomic trends, including the strengthening of the U.S. Dollar, have sidelined many of these would-be buyers and has lead to this predictable outcome.
What about the ‘normal’ New York City markets? Where is the $3-5 Million market? The $1.5-3 Million? The under $1.5 Million? What we seem to be witnessing is a softening in the middle but an under $2 Million market that isn’t shifting much due to a combination of pent up demand and a relatively normal inventory. This higher level of demand in this segment of the market is a direct result of trends from the past several years. Cash buyers had dominated the market which was characterized by bidding wars and a high number of sales going above ask, leaving many well-qualified buyers on the sideline. Will this trend continue? Manhattan, with it’s relative safety, attractiveness for those with wealth and education, and strong employment opportunities protects this segment of the market from many of the trends that impact the top. According to Jonathan Miller’s analysis of inflation adjusted price trends, “Resale co-op and condo price aggregate were 23.6% below the inflation adjusted peak of 2Q08.” The news circulating that points to record prices and meteoric quarter over quarter growth are skewed by both the luxury new development closings that occur almost two years after going into contract and a non-adjusted for inflation data pool.
According to many experts, Warren Buffet included, we are not in a real estate bubble like the one we experienced in 2008. Buffet also predicts that real estate “won't cause the next financial crisis” and that “people are not paying bubble prices for real estate.”
Does this mean there is only opportunity if investing in the Super-Luxury market? While there will be incredible opportunities for investment in the high-end, especially in new development, we are also seeing a trend towards increased supply in other areas of the market. Nowhere near the highs of 2009, supply in the $1-2 Million segment is up approximately 29% since last year.
Have a look at the attached articles, check out these incredibly interesting graphs and please, as always, reach out with any questions on how you can take advantage of these current trends or how to protect your real estate assets. Also, feel free to reach out with any questions regarding a specific trend or segment of the market. The LevinKong Team is available to serve all your New York City real estate needs and those of your friends, family and colleagues.
Three Cents Worth: How Inflation Really Affects Manhattan Sales Prices
Warren Buffett: There Is No Bubble in Real Estate