This new year will feel a little like Yogi Berra’s “déjà vu all over again.” Real estate headlines for 2015 will echo many of last year’s dominant themes with a few twists.
A shrinking housing stock of resale apartments has become chronic.
After two years of property shortages, absorption rates are decreasing albeit with fewer closings. It won’t take all that many purchasers to absorb the scarcity of product. For each new offering that is priced on the money, bidding wars will continue. Despite an expected seasonal slowdown at the end of 2014, 4th quarter stats were strong with 2,914 contracts signed, up 12% from last year according to Noah Rosenblatt at Urban Digs. New development sales brought the average apartment closing price to a high of $1,718,530 for the year, 19% over 2013 and surpassing the previous record set in 2008 of $1,591,823. Though snow storms and frigid weather may impede activity in 2015’s first quarter, inventory starved buyers will be on the hunt for realistically priced offerings in every price range, particularly first timers and purchasers with budgets under $5M.
Can you top this?
While the run up in condo prices far outpaced co-ops, it was in fact three Rosaria Candela co-ops (all requiring cash purchasers) that grabbed the most attention, each sale setting a new record and topping the previous. In mid March, the Penthouse at 960 Fifth Avenue went into contract in less than two weeks after competitive bidding and closed in May at $70M to Egyptian billionaire Nasset Sawiris who paid $5M over the asking price. In August, hedge fund manager Israel Englander paid $71,277,500—an astounding 48% over the ask—for an 18 room duplex at 740 Park Avenue. Last week, news broke that the co-op board at 834 Fifth Avenue approved the $80M purchase by Leonard Blavatnik of the 14 room duplex owned by Woody Johnson of the NY Jets. Still to come in 2015 will be the closing by William Ackman and friends on the investment purchase of the 75th and 76th floors at 157 West57 Street for a reported $90M, which will trump the previous record breaking sale in 2012 of $88M of the Penthouse at 15 CPW formerly owned by Sandy Weil.
2014 was the strongest year ever for the super luxury new development market.
Last year’s closings at new towers such as 157 West 57 Street have undoubtedly skewed averages, with three transactions over $50M and six in the $30M range. According to Donna Olshan’s Luxury Market Report which tracks contracts signed for properties over $4M, 41% of buyers in this category purchased apartments from floor plans for units under construction that won’t be delivered for up to 18 months. With twice as many new condo apartments scheduled to come to market in 2015 than 2014, (6,287 compared to 3,112) the largest number since 2007, buyers with $10M+ pocket books have decidedly more purchasing options, and they will undoubtedly take more time to evaluate upcoming new products, slowing the pace of trading and contributing to a leveling of prices. With more competition, this is a market in transition.
Taxes comprise another story.
In late September, reports proliferated about a steep annual property surcharge on expensive residences owned by non city residents. With a sliding levy starting at half a percent for properties valued at $5-6M and going up as high as 4% for homes valued at $25M or more, the tax was expected to raise about $665M annually. Such a tax would severely crimp the investment market, and real estate insiders expect Mayor de Blasio to reject the bill. More palatable, is the proposal being floated to increase the one time mansion tax by an additional 0.5% on transactions over $5M which would raise an estimated $34M in 2015. A closer look at raising the $1M threshold altogether is in order, since apartments priced at $1M today are hardly mansions.
There was talk of rising interest rates for the better part of last year, but in fact mortgage rates are lower today than they were at the start of last year by .375 to .50 basis points.
Economists are now predicting rates will rise nominally in the latter half of 2015. Donna Vitalone, Senior Residential Loan Officer at BankUnited points to the Fed’s positive language in December: “The US Federal Reserve Open Market Committee stated an intention to be ‘patient’ as they move toward future potential rate increases, providing analysts with a great deal of comfort relative to interest rate policy. Also of note at the meeting, the committee approved new forecasts that suggest the economy will pick up steam in 2015 and the job market will significantly improve. At BankUnited,” she adds, “we created a Foreign Buyer Program for NYC and Miami markets because of high demand as well as non-QM Jumbo loans we hold in portfolio.” Other products may be offered as new banks, investors and private equity firms enter the lending arena. If the regulatory environment eases somewhat that will be a welcome change particularly for mid market and entry level buyers who would be impacted most by any rate hikes.
There will be challenges and opportunities in the months ahead for buyers, sellers and their agents. Stay turned as the headlines of 2015 continue to unfold.