CLASSIQUES MODERNES NYC REAL ESTATE REPORT 2ND QUARTER 2017
New York, NY - Second quarter figures on property sales and rentals came out last week and it pretty much reflected what our experts on the field already know: market performance is mixed, with the upper end experiencing sluggishness, the ultra-luxury market practically at a stand still, and the more affordable units moving at a considerably quick pace.
Despite what brokerages and industry reports suggest, nothing that is happening now is really surprising or new. The "starter market," i.e., those that are either considerably lower on a price per square foot, or are affordable in terms of budgetary considerations (ex. studios below or around $500,000; one bedrooms below $1 mil, 2 bedrooms priced up to $1.5 mil) are in high demand. This may be attributed to stubborn high rentals (read why rental pricing isn't reliable below), fear of rising interest rates; and an active international investor market for lower-end properties. Its is important to underscore that it has been the case for this market segment for more than a year, and we predict it will continue to outperform its pricier counterparts, activity wise.
The secondary level market are just above the affordability of new homeowners and are beyond reasonable returns on investment. This mid-luxury market is experiencing difficulty in selling. Predictably, there is considerable increase here in both price reductions and time on the market. Brokers and sellers who were still coasting in the fantasy of a roaring market were the major culprits and victims. They now find themselves with no offers and with minimal, if any, activity even when the listing has been on the market for weeks. Still they try all sorts of marketing and promotional gimmicks. But in this market, it is not location, location, location. It's PRICE, PRICE, PRICE!
To be fair, many good agents advise proper pricing to their sellers. Unfortunately, some simply ignore it, thinking they will be the one seller in a (few) hundred to get lucky. Someone does win the lotto every week, after all.
They're usually the same people who want to sell at higher than market price, and pay lower than market when they purchase. They have their own special calculator that defies the laws of economics and math. It's like a "magic mirror' that gives them only numbers that please them.
Of course, everyone is entitled to dream. That's not what's inherently creating a difficult market. But when the economy is relatively flat, this means a flat real estate market as well. No one moves. And THIS, is what's causing a lack of inventory.
Contrary to popular belief, a deal is made not when someone loses. It's made when both parties are motivated to do a deal, that is, when "no deal" is worse than settling for a little less(or more) than what each expected. When, like today, both parties are on the fence waiting for the market to pivot widely their way, we've reach a stalemate.
The ultra-luxury market with double digit price ($10+ mil) tags are suffering the most. This is especially true since activity coming from international investors caught the attention of the U.S. Congress and the public. The election of Donald Trump should have been a positive for the industry. But so far, it has proven to be a plague. Even simple matters that could be easily explained as normal industry transactions are infected by Trump's obscure financial dealings, sloppy communications, non-disclosures, disclosures after the fact, inconsistencies, and an arrogant insistence that his family and their finances are beyond question, and worse, above the law. All this is more than likely going to lead to MORE regulations, not less, which is the opposite of what the industry expected.
Going back to the ultra-luxury market, as we reported previously, there should have never been this much inventory built. Overzealous developers kept building as if billionaires are taking them by the dozen. Real estate is not the only investment opportunity in this global economy. Those who can afford to take risks have other investment interests. There wasn't a limitless list of billionaires looking for $50 mil homes. Notwithstanding that in every habitable continent, there is at least some part experiencing political and societal instabilities. While less affected, the very affluent are not altogether immune to local and global crises.
By far, the Manhattan townhouse market is the most striking. Inventory is at an all time high, and so are the days on the market. Still, there seems to be no huge effect on asking prices, at least for now. Brokers and sellers are finding creative ways to market their properties. For instance, 50-54 East 81st Street is a set of three separate townhouses facing P.S. 6 on Manhattan's Upper East Side. While an interesting marketing ploy, it is difficult (albeit not impossible) to imagine that someone will purchase the combination upwards of $50 mil plus renovation cost! Furthermore, how someone is going to be able to create a seamless facade is beyond me. But I could be wrong.
Then there's the East Side owner who is trying to sell a renovated townhouse, with three different prices: one for delivered vacant, one with him as a tenant and the rest vacant, and one selling just part of the townhouse. Unless he is willing to pay over market rate to lease, almost no buyer will want a previous owner leasing in a unit they just bought.
The bottom line, reasonable sellers who price their apartments properly are more likely to sell their properties quickly. Those who own "starter" or "affordable investments" may even receive multiple offers. Those who are not prepared to lower their expectations should expect to wait longer for the right buyer or for the market to catch up.
On the other hand, buyers should also understand that most sellers are not desperate. You should not make a lowball offer, significantly less than market, just because you "heard it's a buyer's market" and expect to get anywhere. You are just wasting everyone's time. Also, when you work with a broker, you should let the agent make the appointments and do the negotiations. Don't do it on your own thinking you'll be cutting someone's commission. Don't surprise the listing agent later that you have a "broker" when you find out you can't. Someone who doesn't trust is generally untrustworthy. Agents may work on a listing for months, even years. Maneuvering to cut them off their commission after the fact is so, well, presidential 2017.
With regard to the rental market, rental figures remain artificially inflated. There is an excessive amount of rental inventory. Many landlords are offering them at "No Fee," are offering to pay brokers' commissions, and/or giving one to two months rent concessions. This is true especially for the typical apartment layouts. Lofts and other unique higher-end residences may fair better, but they also tend to take longer to rent. Some are even including extraordinary lifestyle connection services like those managed by Classiques Modernes.