1. Real estate is big news. We’ve gotten beyond the boom and bust bubble stories that dominated the headlines for three years, but now we’re being bombarded with speculation about whether a shifting market is in for a soft or hard landing. There’s not a day without some housing talk by the media. For more than six consecutive years, until this year, the housing sector enjoyed a steady, robust uptick of rapidly rising prices, fast paced transactions, and high numbers of sales. This year, growth has been minimal. With ever expanding inventories of new development projects, trading has slowed, sales volume is down and prices have leveled. In addition, across the country, new housing starts have declined. Nonetheless, value abounds in the marketplace.
2. New York is the most insulated real estate market in the nation. Unlike other housing markets, Manhattan real estate benefits from the city’s inherent strengths. A magnet for the world’s super wealthy, Manhattan is also home to the financial industry. Much of the profits and bonus money from Wall Street’s hedge fund managers, investment bankers and law partners winds up in the purses of the city’s real estate sellers. Primarily a user rather than investor market, Manhattan is also dominated by cooperative ownership which requires user tenancy and which limits the amount that a buyer can finance, thus preventing over leveraging. New York buyers are less able to stretch their wallets to purchase housing. Additionally, many co-op boards are steering buyers away from exotic loans, some specifically prohibiting interest only products. With co-op ownership, shareholders leverage less and gain larger equity positions.
3. If you build it, will they come? Perhaps the greatest shift in the marketplace is occurring among new developments which have grown exponentially in the last two years. New projects are altering the face of our housing supply. The current product ratio of 15% condo to 85% co-op is expected to approach 35:65 in the next couple of years. Creating new choices for buyers, these new condominiums compete vigorously with co-op and condo resales. But there is increased pressure on developers from rising construction costs, in some cases 30% above last year. Unlike the overheated markets of two years ago, when sponsors were submitting multiple price increase amendments to offering plans, today’s developers are providing incentive upgrades and covering closing costs, and a handful are filing price reductions with the Attorney General’s office.
4. The market for affordable rentals is shrinking. A renewed wave of condominium conversions is sweeping the city. Vastly different from the 1980’s when developers gave rental tenants deep discounts to purchase, today’s insider offerings are only marginally lower than published prices. As some of these tenants consider becoming first time buyers, they are fueling the bottom end of the sales market. For the most part, however, these residents can not afford to buy.
5. Co-op sales prices are now public. This summer Governor Pataki signed into law a bill that requires the disclosure of cooperative sales prices. While some have lauded this passage, others question whether it jeopardizes privacy issues. Also on the slate of bills reviewed this July, but not passed was the Fairness in Cooperative Housing Ownership Act which would have established a time frame within which co-op boards would have to accept or reject applicants and also would have required that a written explanation be given for any rejection.
6. REBNY provides a Co-op Board Admissions Guide. This spring, REBNY introduced a guide for managing agents and Board members that includes recommendations for Board review and identifies 14 protected anti-discrimination classes, and also suggests a six week time frame from package receipt to response. Untimely reviews are not only inconsiderate, they put lives on hold indefinitely.
7. Interest rates are still at historic lows. While rates have seesawed up and down fractionally this year, the public perception is that they are increasing. Yet they are still at historic lows, and it’s unlikely they will approach double digits any time soon.
8. Staging gains increased importance. There’s no good reason for a property not to show to its best advantage. Armed with practical advice from brokers and tips from apartment stylists or professional “stagers,” today’s sellers understand the advantages of presenting a property for maximum visual and emotional appeal. Staged apartments sell faster and for more money than unstaged ones.
9. Air rights are the new commodity. Four years ago, empty lots—particularly those in Harlem—were the market’s hot new product as brokers talked about the price per buildable square foot. Today, the latest index of market development is the sale of air rights, as the product moves from the commercial arena to the residential marketplace. The ability to use vertical air space above smaller buildings which are not built to the maximum allowed by zoning depends on location and zoning height limitations. Contributing to increased values, air rights can be used to protect light and views, or to build above a structure, or lots can be merged to create more desirable development.
10. The more things change, the more they remain the same. The cycles of real estate are fluid. As always, the advice to principals is to work with an experienced professional who understands the market economy who will help buyers to evaluate purchase opportunities and who will guide sellers to set realistic prices. Buyers are advised not to fear jumping into the market at any point this year. But don’t gamble with your residence—buy quality, put deliberate limits on your financial exposure and don’t leverage to the max. Barring the unforeseen, in the months and year ahead, a return to more even activity with modest price appreciation is welcomed.