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New York City Real Estate Rundown
November 2 Update
Thomas Moran
November 02, 2023
Market Pulse
Last week in the Manhattan real estate scene, there were a total of twelve contracts signed valued at $4 million or above. This marked a decrease of seven contracts compared to the previous week. Townhouses surprisingly lead the way last week with 5 contracts signed followed closely by co-op apartments who outperformed condos 4-3. In terms of neighborhood activity, the Upper West Side, Upper East Side, and Downtown each reported four transactions in the past week.
Market Statistics for October 23 - October 30, 2023
Total Weekly Asking Price Sales Volume: $118,758,250
Average Asking Price: $9,896,521
Median Asking Price: $6,950,000
Average Discount from Original Ask to Last Asking Price: 13%
Average Days on Market: 377
Top Sale
PH18EF at 115 Central Park West
The standout deal of the week was PH18EF, located at 115 Central Park West, which was listed at $19.95 million, down from its original listing price of $25 million two years ago. This luxurious unit offers five bedrooms, 5.5 bathrooms, and four terraces. Notably, the living room, library, and two bedrooms have views of Central Park, all complemented by terraces. The unit boasts marble bathrooms and central air. The Majestic, the building housing this unit, provides various amenities, including a fitness center, children's playroom, and a landscaped roof terrace with a solarium.
In a noteworthy side note, one townhouse transaction was not included in last week's total, as the contract had been in the works for several weeks. This particular townhouse, situated at 146 East 65th Street, closed at a remarkable $47 million, making it the most expensive townhouse deal of the year. This 40-foot-wide house offers 12,500 square feet and previously belonged to the late David Rockefeller, whose estate sold the property in 2018 for $20 million. The recent seller invested four years in renovations with Steven Harris as the architect, and the annual real estate taxes for this property amount to $118,118.
New York City’s Construction Problem
The real estate industry consistently releases reports highlighting a concerning decline in housing construction. But, let's face it, the story remains the same, and it's not exactly headline news. It's a bit like reporting that the sun rose in the east or that water is, indeed, wet. The reason these stories about housing shortages don't grab much attention is simple. Most people don't want to read the same story over and over again.
However, despite the redundancy, the industry continues to sound the alarm like Bill Murray's character in "Groundhog Day" (although, regrettably, we haven't found our happy ending yet).
Just last week, the Real Estate Board of New York revealed that September's permits for new construction projects in the city were on track to yield fewer than 10,000 new housing units this year. In a city boasting an all-time high of 4.7 million jobs, this number is minuscule. Historically, we have built three times as many homes and really need five times as many to address the housing shortage adequately.
Source: REBNY
But why does this new supply matter so much? Well, it matters a lot. When people compete for a limited number of homes, the highest bidder comes out on top. It's as simple as that. The more bidders there are, the higher the winning bid.
Of course, other factors like wages, subsidies, regulations, and construction costs also play a role in the affordability crisis. But not adding more housing supply only exacerbates the problem.
Some so-called housing experts erroneously believe that adding housing actually drives up rents. For instance, they argue that if a developer builds $500,000 homes in a city where the median home price is $300,000, the median will increase, making housing more expensive.
However, this perspective neglects the effect on existing homes. If there are no new homes available, those with a $500,000 budget will compete for older $300,000 homes, driving up their prices. In this "no-build" scenario, housing prices also rise, and affordability worsens as lower-budget buyers get priced out.
Moreover, when people with higher budgets purchase a home and spend the excess on improvements, the property's value increases. In the "build" scenario, someone buys a new home for $500,000, while someone else purchases the older one for $300,000. This approach is clearly better for affordability than not building new homes.
It's frustrating to see that some people either haven't thought this through or are intentionally ignoring the reality to advance their own agenda. Unfortunately, until they change their stance or disappear – both unlikely scenarios – the pro-housing movement will continue to face difficulties.
In New York, this issue is epitomized by a group called the Met Council on Housing, which promotes an agenda against rezoning that it believes causes rising rents. They even blame the Rent Guidelines Board for rent hikes, an entity that usually limits rent increases at rent-stabilized units to less than the rate of inflation. This is essentially a rent decrease when adjusted for real terms.
Blaming the Rent Guidelines Board for rising rents is akin to blaming the sun for rain. It seems that the Met Council may have a major blind spot or, more likely, an agenda that takes precedence over affordability.
Their slogan, "Housing for people, not profit," reveals their goal is to prevent profits rather than achieve affordability. In the real world, where public housing can't accommodate 8.6 million New Yorkers, these goals are mutually exclusive.
Yet Met Council and like-minded groups keep making the same claims repeatedly, like a never-ending Groundhog Day without the happy ending.
Economies Affects on Real Estate in New York City
As Federal Reserve policymakers gear up for their upcoming meeting, the economic data from the past week brings a series of challenges into focus. These key considerations encompass robust GDP growth, persistent inflation concerns, and the ever-present question of interest rate adjustments.
GDP Growth and Inflation Concerns
First, let's delve into the impressive GDP figures. According to the recent report from the Commerce Department, the economy expanded at a remarkable annual rate of 4.9% in the third quarter. This growth rate is the highest since late 2021, pre-pandemic. However, amid this growth, it's crucial to underline that inflation remains a persistent concern.
The same report highlights that while inflation shows a cooling trend, it is far from being resolved. In September, consumer prices increased by 3.4% compared to the previous year, and core prices, excluding food and energy items, rose by 3.7%. Although this is below peak inflation levels, it still exceeds the Federal Reserve's target of 2%.
This scenario presents Federal Reserve policymakers with a dilemma. The economic projections they released after their September meeting now appear likely to be off the mark. The forecasts anticipated fourth-quarter GDP to be 2.1% higher than the previous year, and core prices were projected to be up by 3.7%. However, these projections seem increasingly unrealistic. Given this backdrop, it appears highly unlikely that the Federal Reserve will raise its target on overnight interest rates this week. Currently, the interest rate range stands at 5.25% to 5.5%, and there are several reasons for this cautious approach. First, the Fed perceives the current interest rate level as already restrictive enough to slow down the economy over time. Additionally, the recent surge in long-term interest rates, with the yield on the 10-year Treasury note briefly exceeding 5%, has contributed to cooling the economy. Mortgage rates have also surged, with the 30-year fixed mortgage rate reaching its highest level in 23 years.
Impact on the Real Estate Market
Now, you might be wondering, how does all of this affect the real estate market? Let's break it down.
Higher interest rates can influence the real estate market in several ways:
1. Mortgage Rates: When interest rates rise, so do mortgage rates. This can make it more expensive for potential homebuyers to secure a mortgage. As a result, some buyers may be deterred from entering the market, which could lead to a slowdown in home sales, particularly for residential properties.
Source: Bloomberg
2. Home Affordability: Higher interest rates can impact home affordability. As mortgage rates increase, the cost of homeownership rises. This can affect the purchasing power of potential buyers, making it more challenging for them to afford homes, especially in high-priced markets.
With that being said, in a high-rate environment, property prices drop, offering a unique opportunity to secure real estate at a lower cost. The current buyer's market in Manhattan is a golden opportunity for savvy investors. Higher rates might increase borrowing costs, but the potential for significant savings on property prices more than compensates for this. So, if you've been contemplating entering the Manhattan real estate market, now may be the ideal time to make your move. When interest rates eventually decrease, they tend to do so incrementally. Saving tens of thousands of dollars on a property's asking price is far more advantageous in the long run than saving a few thousand dollars per year on a lower interest rate. For every $100,000 borrowed on a mortgage, the difference in monthly payments between a 7% interest rate and a 5% interest rate is only $640 per month. While higher rates may seem daunting, this increase pales in comparison to the potential savings you could enjoy by purchasing in a market with lower prices.
3. Existing Home Prices: Existing homeowners might see the value of their properties impacted. If potential buyers are deterred by higher mortgage rates, the demand for existing homes may decline, potentially affecting price growth.
Future Outlook: The recent developments in interest rates and the bond market can have a notable impact on the real estate market in Manhattan. Potential homebuyers, property investors, and developers should closely monitor these changes and adjust their strategies accordingly to navigate the evolving real estate landscape. The Federal Reserve's stance on interest rates and the bond market's behavior present both challenges and opportunities for the Manhattan real estate market. Your understanding of these dynamics is crucial when evaluating the broader implications for your real estate investments in Manhattan. Stay informed and adapt your strategies to the evolving real estate landscape.
Pick of the week
For those of you who might not know, beyond the bustling world of real estate, I'm quite the NFL fan! As we dive deeper into the season, I thought, why not sprinkle a little fun into our newsletter? Every week, I'll share my "Pick of the Week" for sports betting. While my expertise is firmly in real estate, I think this will be an enjoyable twist for our readers. But remember, it's all in good fun and purely for entertainment – always wager responsibly!
Last week's pick admittedly fell short of the mark. To make amends for that subpar selection, I'm offering two picks this week. First up, the Chiefs vs. Miami, a choice I'm particularly keen on. Then, we'll look at the Texans vs. Buccaneers. Fingers crossed as we aim to regain our winning momentum!
Chiefs -125 vs Dolphins
Texans -160 vs Buccaneers
Record 4-2
Contact Me Today
Feel free to reach out to discuss more in-depth about your real estate goals, share your thoughts about my newsletter, or to share what you're experiencing in this market. I look forward to hearing from you!
