As reported by Bloomberg, what began as a softening of the luxury real estate market in New York has expanded to lower-tier properties. The top 20 percent of apartments are now experiencing price cuts.
Changes in real estate values tend to make investors and homeowners break out in a cold sweat, much like swings in the stock market. But, the current trend in New York isn’t anything to panic about. 2016 wasn’t anything like the crash of 2007-2008.
According to Bloomberg, the luxury market and the tier just under that market (again, the top 20 percent of properties) saw price drops in the 5 to ten percent range.
The definition of a stock market correction is a ten percent drop. The drop, unlike real estate, is often hard to predict, but it’s still considered business-as-usual and not a crash.
In order to keep perspective, it’s important to understand why the real estate market is softening. What’s causing the current dip in New York property prices?
First, 2015 was a “record year for residential building permits in New York City”, according to Slate.
In December 2016, the magazine ran an article that stated, “With developers pressed by expiring loopholes, the city authorized nearly 35,000 new units in the second quarter and nearly 10,000 more in the fourth. Total permits topped 50,000—more than any year since the early 1960s. And many of them aren’t done yet—according to the U.S. Census Bureau, about half of all multi-unit projects take more than 13 months from the permitting date to be completed.”
Translation: the permits issued in 2015 created projects that were being finished in 2016 and early 2017. With those units on the market (or soon to be there), basic supply and demand theory indicates that residential real estate prices will drop.
Yet, New York is still an expensive place to live. Even with the building boom, finding affordable living options is still a challenge.
According to Fortune, “more younger folks are finding themselves attracted to medium-sized cities, which may not have the same professional opportunities as their larger counterparts, but provide housing affordability. Cities like Raleigh, N.C., and Fort Collins, Colo., have seen building permit issuance soar over the past six years as they attract younger adults seeking cheap rents and lower asking prices. Expect the trend to continue in 2017.”
Younger professionals whose wages haven’t kept up with the cost of living are moving to smaller, more affordable cities. So, when they do get to a point that they can afford to buy, they’re not buying in New York. Ironically, that could drive down the housing prices. Fewer buyers and potential buyers means more competition for the buyers that are still in New York.
Finally, there are truly only so many people who can afford high end, luxury, housing, even in New York.
Curbed’s sales market report states, “In 2016, contracts to buy Manhattan houses priced at over $4 million were 21 percent fewer than in the same period in 2015. And the properties that sold sat on the market an average of 291 days, or 54 more days than in the same time last year.”
A $4 million home, with a 20 percent down payment ($1 million) has a monthly mortgage of $21,099. According to the Bureau of Labor and Statistics, in the first quarter of 2016 Manhattan’s average weekly wage was $2,783.
Not nearly enough to cover the mortgage on a luxury home. So, maybe it is time for a little bit of market correction?
Although New York City is always changing, it’s hard to imagine to imagine it as anything other than what it is. But change is part of New York’s identity. It is manifest in the crowds of people swept up and spilled out of the island metropolis. Even evidence of New York’s history–in the recreated apartments of the Tenement Museum, for example, and the old City Hall subway station–still feel folded up in this vision. New York has endless layers: you can ascend seventy floors in an elevator to get to your office or descend four stories on the escalator to ride the subway.
To imagine another New York–a different New York, rather than one that has previously existed or secretly exists–is a different matter. It rings of an alternate timeline, so anchored is this city’s iconic skyline in its urban identity. Sam Lubell and Greg Goldin have documented just that, though, in their book Never Built New York. By canvassing architectural firms and archives when available, the authors have unearthed designs and plans for a New York that might have been. Not only could these designs have become a reality, but they might have taken the place of other now iconic architecture in the city.
Some projects were closer to inception than others, but many would have radically altered the cityscape. A gigantic dome over Midtown and a floating airport on the Hudson seem some of the more far-fetched ideas, as does an ambitious extension of downtown Manhattan into New York Bay. As the authors point out, however, these ideas may not have seemed so extreme when first proposed. “’It was a time when people really believed in the power of technology,” Lubell says. ‘And they thought, you know, we can do kind of anything. … We’re building spaceships that go to the moon, why can’t we build a dome over Manhattan to get rid of all this pollution, get rid of all the problems of weather?’”
Credit: Stanford University Libraries va pri.org
That’s all well and good, but what about Frank Lloyd Wright’s proposal to transform Ellis Island into a bubble city? And his plan might have been preferable to the immediate alternatives: a prison or a resort. Ellis Island wasn’t in use for long after WWII, so it makes sense the city would want to develop it. No landmark is sacred, as proved by the demolished old Penn Station. And Grand Central Station isn’t still standing for lack of trying.
Many city landmarks might have looked very different if, for example, City Hall had been rebuilt as a “neo-Egyptian pile” in the style of Scottish architect George Ashdown Audsley around the turn of the turn of the twentieth century. And the Federal Reserve Bank could have been made of glass and elevated many stories above the ground via steel columns! Speaking of columns, residential towers were once considered for use as supports of bridges spanning city rivers.
Although some of the designs may sound impossible, some would have undoubtedly complemented the city, like Edward Larrabee Barnes’s 1974 biosphere. Some might have improved the skyline, like a Columbus Circle building for ABC designed in 1963 to take the shape of a flower. There’s also the proposed 2004 Olympic Village, situated on the now booming Queens waterfront…
To help New Yorkers and visitors imagine a Big Apple that might have been, the authors are working with the Queens Museum to reconstruct atop the museum’s existing model of the city. The exhibit will open later in 2017.
Featured image: American Weekly via pri.org
New York City has already accommodated for Trump supporters—and Donald Trump’s headquarters in Midtown leading up to the 2016 election and beyond. Now, the city is preparing for four years of tightened security and more traffic as presidential motorcades make their way in and out of New York City during Trump’s term. Commuters, Manhattan residents, and taxi drivers are all going to be part of larger swarms of traffic going in and out of New York City on a daily basis. If you’re planning to move into the city or are already living in the city and exploring housing options, don’t overlook the traffic forecast in the neighborhood as we see an increase in vehicles and tighter security measures because of Trump’s election.
While residents and visitors to Manhattan are already used to traffic jams and traffic headaches day and night, having a New York resident serve as President of the United States means there will be many presidential motorcades and security officers patrolling the streets. The streets around the Trump Tower in Midtown Manhattan were almost impossible to maneuver the week of the election and for a few weeks afterwards as both protesters and supporters made their way to the tower to share their views.
Since Donald Trump has New York City roots and a team in the city working with him, he may be making many trips to area restaurants, event venues, and other points of interest at a moment’s notice. This won’t give the city much time to block off roads, divert pedestrian traffic, and take other security measures to ensure Trump, his family, and his workers are safe — and that New York residents and drivers aren’t entirely affected by Trump’s next move.
In a letter to Obama and Congress about Trump’s inauguration, Mayor Bill de Blasio pointed out, “It is a high-density neighborhood and street traffic easily obstructs pathways to and from the building, making it profoundly challenging for the NYPD to establish a secure perimeter.” The first bill to cover Trump security costs was an estimated $35 million.
So what can we expect now that election season is over? Any major events where Trump will be present will require additional security and NYPD may be involved in redirecting traffic. We might see a disruption in tourist flow when Trump is traveling across the city. Director of the New York Taxi Workers’ Alliance, Bhairavi Desai, shared with the Wall Street Journal that 20-minute trip turns into a 40-minute trip when Obama was in town. Many cab drivers will be looking at similar traffic delays and the possibility of changing routes at the last minute now that Trump, a local resident, will be in town more often than not.
The recent election has shaken up New York City in many ways and we can expect to see a significant impact on traffic patterns and tourist flow in the upcoming years. Current residents and future residents to the city will need to accommodate for large-scale traffic jams and ongoing traffic problems as Trump and his crew make their way around the city for events, appearances, and day-to-day travel needs.
Hint: Yes, and Maybe Sooner than We Thought
While finding shelter may be one of the oldest human instincts, the way we find shelter may be about to change drastically—at least when it comes to buying or renting a new home.
In early December, 2015, a father-son team, Miquel and Ami Berger, of Albany, New York created an app that works with Amazon Echo–one of the many devices currently available in the U.S. that offer electronic virtual assistants. In the case of Amazon, the assistant is named “Alexa.”
Virtual assistants, from Alexa, to Apple’s Siri and Microsoft’s Cortana, respond to vocal prompts and do everything from finding a coffee shop to getting directions to The American Museum of Natural History to turning on the lights in your home– depending on how digitized and wired-up your life is. (For a humorous explanation of the benefits and limits of various personal assistant devices, or “the genie in the hockey puck” read OnComp’s blog.)
So, how does the app work? Pretty much like having a conversation with an agent or relator who has every MLS listing in their head–albeit a formal and limited conversation. First you ask Alexa to “open real estate.” Alexa will then say, “welcome to your virtual agent” and you’re off. Do you want to buy, rent or sell? How many bedrooms? What’s your price range?
The app is being tested in the Berger’s hometown of Albany and is one of only a few on the market.
Does that mean the market is limited? Will people really use a disembodied electronic voice to find a new home? Trends indicate that yes, this is the next technology step in house hunting.
According to the National Association of Relators, in 2015, 51 percent of home-buyers found their house on the internet and 34 percent used an agent. By comparison, eight percent of home-buyers saw a yard sign or an ad for an open house.
Digital assistant apps are, essentially, where the internet and the agent are one and the same.
Still seems far-fetched? Well, remember when phones were only used to make phone calls?
Like smart phones, virtual assistants are getting smarter and more useful every day. In June, Fortune magazine reported that Alexa had more than 1,000 skills, due the multitude of apps being developed for the Echo device.
If the use of digital assistants explodes the way smart phone use in general has—64 percent of American adults now own a smart phone, which is nearly double the number reported in 2011 according to the Pew Research Center– then asking an app to find you a place to live could become common-place. The same Pew survey also reports that phones are already used for everything from checking on health conditions to applying for jobs.
Is it such a stretch, then, to imagine a scenario where a frustrated renter is standing in their tiny, galley, kitchen and walking Alexa, or Siri, through filling out forms for a mortgage? One that will cover a larger home with a real kitchen!
Take into account that 35 percent of the homes purchased in 2015 were by first-time buyers, and that the median age of first-time buyers was 32. These older Millennials, despite their generation’s bad-rap, are tech-savvy grown-ups who need a great place to live.
Where are they going to look for information? Clearly, not the newspaper or yard signs. But asking a personal, digital, agent to find the perfect home?
That’s not just in some far-off, fantasy, future—it’s here.
New Year’s resolutions for many Americans might include taking a leap in the housing market, whether it be buying, renting, or selling a home. Identifying possible behaviors of the real estate market in 2017 can help those entering the real estate market make informed and timely decisions. Predictions show that competition for affordable homes will be fierce this year due to increasing numbers of home buyers who are on the hunt for affordable homes that just aren’t as readily available as they used to be. Knowing these trends can give renters and buyers the upper hand in a competitive market. Here are some other factors that are shaping real estate in 2017.
1. Finding value in older construction
While new homes are desired by many, it could be advantageous to look at older construction that could be remodeled, giving buyers the opportunity to incorporate features that fit their preferences. There is also potential to save money by going with an older construction, especially since the price of new construction is going up.
Lately, homebuyers can’t seem to staff enough construction workers to complete jobs. In fact, the National Association of Homebuilders estimates that there are roughly 200,000 unfilled construction jobs in the U.S., which is a jump of 81 percent since 2014. Areas of the U.S. that were hit hard by the housing market crash saw a significant decline in the number of construction workers available for employment. Now, homebuilders find it hard to convince these skilled workers to return to the industry.
This labor shortage is increasing builders’ costs, worker’s wages, and slowing down construction. The time it takes to develop homes is increasing since the demand for workers is growing. Since costs are increasing, developers are pressured to focus on high-end jobs in order to make up for their losses. Meanwhile, contractors are eager to dive into renovation projects for buyers who take on a remodel.
2. Millennials will enter the housing market
Older millennials are now in their early 30s and are looking to settle down and buy their first home. In fact, Realtor.com’s annual survey of potential home buyers shows that 78 percent of first-time home buyers will be in the 25-34 age group in 2017. This large percentage of millennials in the first-time buyer category means that competition for affordable homes will be aggressive, especially in the suburban housing markets. Numerous studies have shown that millennials are attracted to the suburbs more so than large cities due to the availability of well-paying jobs. So it may be worthwhile for buyers to expand their search to urban areas where there may be more options and less competition.
3. Housing inventory will decrease
According to the Realtor.com 2017 National Housing Forcast, housing inventory is down by about 11 percent in major metropolitan housing markets, and this percentage is not expected to increase in 2017, which will mean fewer options for buyers.
The reason for low inventories of homes across the U.S. is thought to be due to several circumstances. First-time home buyers from roughly five years ago are now eager to move out of their starter homes and into the next level home. Unfortunately, these homeowners are discovering that those next-level homes are unaffordable. Their homes are not going back on the market, contributing to a decrease in inventory. Additionally, homeowners who purchased their home before the housing market crash now owe more on their houses than what they are worth. This prevents another category of homes from going back on the market.
Continued low inventory, coupled with an increasing demand, isn’t doing home prices any favors. Home prices have steadily been on the rise, which have increased by an astonishing 8.2 percent.
4. Mortgage rates are on the rise
Mortgage rates are still relatively low and it’s a prime time to enter the housing market. However, rates are beginning to climb, so buyers may want to get pre-approved as soon as possible. According to the Federal Reserve’s recent indication, there will be three more rate increases in 2017. The Mortgage Bankers Association (MBA) predicts the following rates for 2017 by quarter: Q1= 3.9%, Q2=4.1%, Q3= 4.3%, and Q4= 4.4%. Continued mortgage rate increases could lead to ‘rate lock,’ causing homeowners to be hesitant to sell. As rates steadily increase throughout 2017, it will be more beneficial for buyers to make their move in the winter or early spring before mortgage rates get any higher.
5. Home appreciation will slow down
Home appreciation is expected to slow down in 2017, but it is not expected to stop altogether. The Realtor.com Housing Forecast predicts that home prices will grow by 3.9 percent annually, compared to an estimated 4.9 percent in 2016. This can be seen as a positive trend for 2017 since continual appreciation for too long can lead to a market bust similar to what we experienced several years ago. Despite some of the other trends that are increasing the price of homes, this trend will help to stabilize prices.
Due to a shrinking pool of available homes and increasing mortgage rates, buyers who intend to enter the housing market in 2017 would benefit from doing so sooner rather than later. They also might want to consider expanding their search or exploring non-traditional options like renovations. Depending on circumstances, renting may be a viable option as well.