By Daniel J. Bollinger
It is peak spring buying season in the NYC real estate market, and everything that I have been writing about is coming true. The era of aspirational pricing has come to its end, and we’ve entered a stage where realistic pricing is taking hold. I warned “flippers beware” some months ago, and it seems that the news has finally spread. Some good examples of this are:
• A penthouse at 50 Gramercy Park North which has been on and off the market since 2011 is listed at $8.5 million which last sold in 2011 for $22 million.
• A SoHo triplex at 96 Greene Street is slated for a bankruptcy auction (at the time of this writing).
• And the best example is some capitulation at 432 Park Avenue where 13 resales have hit the market which is more than the available sponsor units and more than any other new development condo building in NYC.
Watch for this trend to continue through 2018 as more new development inventory hits the market. 2018 first quarter numbers are in and are not promising for sellers. 1st quarter 2018 marks Manhattan’s slowest sales quarter in more than six years and the largest annual decline since the great recession nine years ago. To add insult to injury, these numbers are slightly overstated as they include closed ‘legacy’ deals as this pipeline is emptying. The average price for an apartment fell 8 percent from a year ago, and new development closings declined sharply. Resale unit sales experienced a 12 percent price increase from last year, new development closings decreased by 30 percent, and since new development prices sell for twice as much as resales (on average), this has dragged down the average Manhattan home price by 8 percent. This 30 percent decrease in the new development sector is the slowest in five years. All this data makes for a great time to purchase in NYC. But what is happening in politics and the stock markets weigh heavily on our real estate market as well.
The stock market continues to have constant historical volatile swings. High triple-digit swings are the norm most days. The S&P has had triple the number of daily 1 percent moves seen in all of 2017. There is a similar trend in the DOW with 30(+/-) 1 percent moves this year already compared to a total of ten in 2017. Most of this volatility has been pegged to the trade war talk heating up between the USA and China. But there are also other factors affecting investors. Both Bulls and Bears have data on their side. The Bulls note that the overall market is still channeling upwards and the market has not breached the lower support line. The Bears are weary of things such as:
• Global government debt has doubled since 2008.
• Interest rates are at historic worldwide lows.
• The bond market cycle is at its historic 35-year shift.
From 1946 to 1981 we had a bear market, from 1981 to today we experienced a bull market, and we are currently in year 37 of this current bull market. Some events to watch for that may usher in a new bear market, if we do enter one, are as interest rates continue to rise local, city, and state governments will start to go bankrupt from servicing debt, which will be a trigger warning of turmoil in the bond markets. In the stock market, if the market breaches the support line in this upward channeling market, it could be the beginning of a correction. This market uncertainty and volatility is positive for the NYC real estate market.
As I have been stating the past few months, there is an excellent opportunity in the NYC real estate market. Prices are trending downwards, and sellers are more willing to accept realistic offers. Tianqiao Chen recently acquired the Vanderbilt mansion for $39 million at a $9 million loss to the seller Libet Johnson. As the world financial markets continue to exhibit volatility and the real estate market continues to soften, investors will begin buying real estate because luxury residential property as assets tend to hold their value in times of broader volatility. As the high end of the real estate market comes down, there is a perfect storm to transfer wealth from volatile financial markets to the safer NYC real estate sector. History suggests that prime city markets are usually the ones that bounce back quickest from any downturn, especially NYC. NYC is possibly the safest city to invest in real estate in terms of hedging against inflation and as a safe-haven for value retention. The unique trait of residential property is that an investor can enjoy their investment by spending time in their home.