Back HomeThe Recovery of the New York Real Estate Market
The decrease in sale prices and the slow completion of new development projects has real estate investors around the world concerned for the New York market. Some of the patterns the market has experienced as of late have been compared to those of the state of the market during the crash in 2008. Dan Fasulo, the former head of research at Real Capital Analytics told the New York Times that the events leading up to what we are currently experiencing can be compared to “‘2007 all over again'” (1).
It appears that there is a repetition in US economy, especially when focusing on real estate. There have always been periodic dips in the marketplace, and periods of recession and recovery seem to be lasting longer than periods of economy expansion. In an article in The Real Deal magazine, Rich Bochmann writes “The hard reality is that the U.S. economy has never gone through a period of expansion that’s lasted for more than 10 years (in fact, the norm is less than eight” (1).
At first, it was easy to see the trends in the market recession favoring the luxury market, since the developers had gone through a trend, “but it’s not just the luxury condo market that has industry players concerned” (1). Both commercial properties as well as non-luxury condos and co-ops are a tough sell on the market, and are becoming increasingly tougher. Some developers have even gone so far as to convert luxury properties into rental units, so as not to lose billions of dollars or face foreclosure.
However, condo buildings converted to rental units are really only smoke and mirrors. The underlying issue seems to be the actual amenities of the units themselves. A fractional portion of the world population can afford high end apartments, but even fewer will be able to afford to rent them. The Real Deal writes, “condo developers have been building much larger units than they did in the past, making it harder to convert those apartments into rentals.” (1)
The debate on whether to sell or not to sell still remains on the table for a lot of developers. Both vacancy rates have increased and sales activity has decreased. In a study done by Patch, “Of the 300 markets in the United States, New York City lagged way toward the back at No. 242. WalletHub studied each of the markets for the average number of days a [listing] remains unsold, percentage of homes selling for a gain, foreclosure rate and vacancy rate, among 11 different factors” (2) “New York’s investment sales market has been in correction mode for about a year, with overall sales activity in Manhattan dropping by 22 percent to $22.7 billion in the first half of the year” (1). The New York marketplace now has become rather sensitive; and many investors, hedge funds, and developers are reluctant to invest in the New York Market – let alone end users. CEO of Time Equities, Francis Greenberger, told TRD last month that he would be “‘very reluctant’ to build a new condo in the city now. Like many developers, he has sought opportunities elsewhere” (1). Of course, publicizing that the New York real estate market is sensitive, leads to a further dip in the economy – which is why many large brokerage firms are taking constant measures not to share the latest data publicly. Most brokerage houses fear a pending domino effect as word gets out: if people know that the New York market is not stable, they will not invest; and those presumptions, thoughts, and speculations regarding the market will become a self-fulfilling prophecy.
In an article in The Real Deal Magazine, Matthew Galligan states that ” ‘From a real estate perspective, there are two key drivers to success: one is low interest rates, and the other is employment growth.’ With the former, there are signs that the party might be coming to an end. In August, Yellen signaled a stronger case for raising rates after kicking the can in July following a weak jobs report and uncertainty over the impending Brexit vote” (2).
It is the actual numbers, the interest rates, that will become another ultimate determining factor for the future of the real estate market – since international cash has virtually entirely dried up to due FATCA laws imposed on March 1st. The Federal Reserve meeting in September will help determine the trajectory of the real estate market; and how it affects both the New York real estate market and the US economy.
(1) The Real Deal
(2) Patch
