We hope that everyone is enjoying the holiday season and we wish you all the best for a healthy, prosperous, and joy-filled 2017. As 2016 comes to end, we look back at a year that marked the end of a five-year run where sellers had seemingly all the power and prices soared quarter after quarter. Particularly from 2013-2015, buyers were pitted against each other in fierce competition for the low inventory that often went well above asking prices. 2016 was the year where our market ‘normalized.’ There are many different markets within the borough of Manhattan where we observed different trends this year. We observed different trends in Brooklyn and Queens as well.
What leverage buyers gained in 2016 heavily depends on the price point. As we pointed out for much of the year, the top of the market, with the highest price tags, saw the most dramatic declines in demand and subsequently the largest decline in price. According to year-end data produced by Urbandigs, the Luxury Sector ($10M+) has fallen 20% since its peak in late 2014/ early 2015. Unsurprisingly, the next hardest hit segment of the market is the High End Sector ($5-10M), which saw a 15% decline since its peak in early 2015. The Mid End Sector ($2M-$5M) has seen a roughly 10% decline since its peak in mid-2015. As we have also been referencing for much of the year, inventory levels in the sub-$2M market have remained relatively low compared to higher market segments, which has kept these prices relatively stable. Here we have seen a decline of approximately 4% since this sector’s peak in mid to late 2015.
In general, deal volume was sluggish in 2016. Compared to this time last year, we have 15% more inventory across Manhattan, 12% less in contract, and it is taking 24% longer on average to sell. When we look at these trends in aggregate, we have a narrative that buyers in 2016 have gained more leverage than they have held in years. Again, this buyer leverage is most pronounced in the higher price points and lessens as we go to lower price segments.
Another strong trend that we saw in 2016 was the insatiable appetite for prime areas of Brooklyn and Queens which benefited from lower inventory levels, which was a stark contrast to the predominantly rising inventory levels in Manhattan. According to data from real estate expert, Jonathan Miller, condo, co-op and one to three family houses all set price records for Brooklyn in the third quarter of 2016. Areas like Long Island City are also seeing a bump in activity due to would-be Brooklyn buyers looking for the ‘next’ opportunity along with the impending L-train shutdown.
Then we have a 2016 into 2017 story that we have literally been waiting on for decades, the long awaited debut of the Second Avenue Subway Line is almost here. Whether or not they hit the target date of December 31, 2016, the opening of this Eastside subway line will have major ramifications for the city as a whole and certainly major real estate implications. We are quite bullish on the effects that this subway line will have on areas East of Lexington on the Upper East Side, Yorkville, and Midtown East neighborhoods. Long bastions of lower sales prices and cheaper rents, these areas should see a significant bump as they finally get connected to the subway system.
And finally, our 2016 wrap up would not be complete without a look as to how the biggest stories of 2016 will affect our market in 2017. The new administration has given strong indications that it will be repealing and pulling back on many of the regulations that the previous administration placed on Wall Street and the banking industry. This will have major consequences, including the loosening of lending regulations, which will help put many first-time home buyers into the market. Rising interest rates, albeit still historically low, should lead many would-be-buyers to jump off the fence and into action. These outcomes will help bolster the already resilient lower ends of the market. The top of the market is mired in over-supply and, although there are strong economic indicators, this will not be enough to fend off a continued luxury slump. There will be many opportunities to take advantage of in 2017 and we look forward to helping our clients navigate these areas.
We will continue to keep you up to date on recent happenings and trends in the market. We hope that you find this informative and useful 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. Happy and healthy new year!!