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New York City Real Estate Rundown October 27
Thomas Moran
October 27, 2023
Market Pulse
Last week, Manhattan's luxury real estate market was very active with 19 contracts signed for properties priced at $4 million and above, an increase of 3 contracts from the previous week. The condominium segment led the way, outperforming co-ops with 13 condo contracts while co-ops accounted for 3 contracts. Additionally, 3 townhouses were part of the mix, underlining the diversity in the high-end real estate landscape.
In contrast to national trends of declining mortgage applications and home sales, New York City remains a compelling outlier. New York City's strong market performance can be attributed to three distinctive factors: a strong Track Record of Appreciation, positioning as a Flight to Quality, and its role as a Safe Haven of Capital for international buyers and investors. These factors continue to make the NYC real estate market highly appealing, even in the face of challenging economic conditions.
As we transition into the fall season, New York's real estate market is poised to experience a more tempered slowdown compared to the national average. The sustained scarcity of available inventory plays a pivotal role, with nearly 9% fewer homes entering the sales market compared to the previous year. This limited supply, coupled with the allure of NYC apartments to high net worth individuals less sensitive to rising interest rates, has contributed to a remarkable uptick in the citywide median asking price, surging almost 12% year-over-year in September to nearly $1.1 million—triple the national average.
Sellers in NYC continue to enjoy a unique position. When pricing their properties correctly, they can secure sales within 45-60 days, often at a slight premium, thanks to the current inventory levels. While increasing interest rates may exert downward pressure on some buyers or impact their purchasing power, real estate remains a pivotal asset class responsible for a substantial share of global wealth.
In a notable shift, the city's rental market has seen a decline in rents on a month-to-month basis for the first time in nearly two years. Although rents remain relatively high, there are indications of stabilization or a slight decline for the remainder of the year. Manhattan's median rent for September dipped to $4,350, a slight decrease from August's record high of $4,400. Furthermore, new lease signings decreased to their lowest level since May, down 12.3% from August. Notably, the borough's vacancy rate crossed the 3% threshold for the first time in over two years.
Source: Streeteasy
A significant contributor to this shift is the substantial increase in listing inventory in Manhattan, which expanded to 9,085 apartments in the last month, up from about 5,600 in August and 6,500 in September 2022. The last time rents decrease month over month in all three boroughs was in November 2021. Additionally, the market share of one-year leases has climbed into the 60% range, marking a shift from the past year and a half when it was in the 50% range. These developments reflect the evolving dynamics in the Manhattan real estate and rental market, presenting opportunities and considerations for buyers and investors alike.
Top Sale
Courtesy: Brown Harris Stevens
The top contract of the week was for 2ABC at 1016 Fifth Avenue, with an asking price of $29.5 million. This property has been on and off the market since April 2021, initially listed at $37 million and changing hands between two different brokerage firms. The 14-room co-op boasts 6 bedrooms, 8 bathrooms, a spacious eat-in kitchen, a 1000-bottle wine cellar, and 2 fireplaces. The living room, library, and formal dining room offer stunning views spanning 64 feet along Fifth Avenue. The sellers invested significantly in renovations after acquiring 2AB for $8.9 million in 2009 and 2C for $2.85 million in 2010. Building amenities include doormen and a fitness center. It's worth noting that only 7 co-ops have gone under contract this year for $20 million and above, indicating a selective market for high-end co-op properties.
New York City Changes Relators Commissions Split
In an effort to enhance transparency and consumer confidence in the real estate market, the Real Estate Board of New York (REBNY) is implementing new rules for buyer's agent commissions. Starting from January 1, 2024, these rules will bring significant changes. Under the new provisions, listing brokers will no longer pay buyer's agents; instead, sellers will directly compensate them. The updated Universal Co-Brokerage Agreement (UCBA) will also require clear outlining of the seller's compensation offer to buyer's agents in listing agreements.
While these changes are aimed at promoting transparency, some agents have expressed concerns. Critics worry that this shift may provide buyer's agents with more leverage and potentially lead to negotiations over commissions right before closing deals. However, proponents of the changes argue that it's a positive step for the industry, as it aligns with the practice of many sellers, especially in high-end transactions, who already discuss commission splits before signing listing agreements.
Notably, these changes come in the wake of national discussions around buyer's agent commissions, with ongoing class-action lawsuits involving organizations like the National Association of Realtors (NAR). These legal disputes revolve around antitrust concerns and compensation practices. REBNY's amendments to the UCBA are distinct from NAR's policies, and they aim to bring further clarity and efficiency to the Residential Listing Service (RLS).
Beyond the commission-related changes, the updated UCBA also addresses "opt-out" listings, allowing brokers to share such listings while maintaining a regulatory posture. Additionally, the RLS will soon accept listings for professional and retail units within residential properties, increasing market visibility and oversight. The UCBA will now recognize electronic payment methods for commissions and rent deposits, including wire transfers, Venmo, and Zelle.
These revisions were recommended by a committee of REBNY members and have been confirmed by the group's board of governors. The goal is to modernize and improve real estate practices in the ever-evolving industry.
NYC Home Ownership Costs are increasing Three times as fast as Inflation
Living in New York City has never been known for its affordability, and recent years have seen a surge in expenses that's putting added pressure on homeowners. Fees paid to co-op and condo boards have risen at a pace nearly three times faster than the inflation rate. This increase is due to stricter rules on inspections, rising insurance premiums, and the need to prepare for a new climate law, all of which are adding hundreds or even thousands of dollars to monthly bills.
Source: Bloomberg
The impact of these rising costs is felt across the spectrum, potentially forcing not only the very wealthy but also those of more modest means, including families, seniors on fixed incomes, and first-time buyers, to consider giving up their foothold in the city. The cycle of constant repairs and construction is driving up insurance expenses, some of which have surged more than 300% for certain properties.
Compliance with the city's stricter building standards has introduced additional costs for homeowners. This includes mandatory facade inspections every five years, with increasing requirements that further raise the expenses of compliance. In the wake of a tragic incident in 2019, the city has also prohibited repairs to damaged terracotta elements, mandating their full replacement, which can cost millions for affected buildings.
Insurance premiums are another source of financial strain, as long standing carriers exit the market, forcing buildings to piece together multiple policies at higher costs for reduced coverage. For those living in buildings subject to Local Law 97, the looming expense involves reducing greenhouse gas emissions by 2024, which could cost thousands per unit to overhaul heating and cooling systems.
While efforts to address climate change are vital, the financial burden has raised concerns among homeowners. There are debates and lawsuits surrounding how the costs should be distributed and whether such mandates are reasonable, especially for co-op and condo owners with varying financial means. The situation reflects the complex challenges homeowners in New York City face as they grapple with rising costs and regulatory demands.
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!
Wow! Could not have asked for much more out of the Ravens last week as they demolished the Lions 38-6. With that win it pushes our season record to 4 and 1 let’s keep this momentum going, this week my pick of the week will be the Packers +120 versus the Vikings.
Packers +120 vs Vikings
Record 4-1
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