Headlines in recent months have indicated a major softening in the New York City apartment rental market.
And commentary from one of America’s biggest homebuilders — Toll Brothers (TOL) — out Wednesday indicates that this trend is continuing apace.
In its earnings release on Wednesday, Toll said that, “Contracts in our City Living division, which operates primarily in the urban metro New York City market, were down year-over-year this quarter.”
The latest Beige Book from the Federal Reserve — a collection of economic anecdotes prepared by officials in each of the Fed’s 12 districts — said last month that, “New York City’s rental market has weakened noticeably, as rents for smaller units have leveled off, while rents of larger units have declined.”
The report added that in NYC, “Both sales activity and prices have slipped, except on small and moderately priced units. Bidding wars have become considerably less prevalent than earlier in the year.”
Earlier this month, the latest Douglas Elliman report on Manhattan, Brooklyn, and Queens rentals showed that in Manhattan, landlord concessions were at a record while in Brooklyn, price trends showed “further weakness across most of the market.” In northwest Queens, the latest epicenter for New York City gentrification, prices continued to “see-saw.”
Manhattan rental prices were down 3.4% over last year in January while inventory rose almost 14%. In Brooklyn, prices fell 1.5% and inventory rose almost 25%.
On Tuesday, economics analyst Bill McBride, who runs the blog Calculated Risk and is a leading voice on housing market trends, said that we’ve likely seen “peak renter” in the US apartment market. McBride noted that this call comes as data from the National Multifamily Hosing Council shows continued loosening of market conditions for apartments in the US.
Overall, however, the US housing market appears quite strong. On Wednesday, data from the National Association of Realtors showed that existing home sales in January rose 3.3% to a seasonally adjusted annualized rate of 5.69 million, the fastest since February 2007.
The housing market, in other words, is seeing some indicators move back to levels last seen before the market crashed.
And Wednesday’s note on the NYC apartment market from Toll came amid executive chairman Robert Toll saying elsewhere in the report that, “With home price appreciation strengthening personal balance sheets, the Dow Jones Industrial Average surpassing 20,000 for the first time, and low unemployment, we believe the housing outlook for 2017 remains favorable.”
And while a continued, sustained rise in interest rates would pressure mortgage rates and, by extension, the housing market, there clearly remains an imbalance between housing supply and housing demand.
There is also, as Toll said Wednesday, a bigger demographic structural tailwind ready to benefit the housing market: millennials.
“The leading edge of the millennial generation has begun to form families, have children and buy homes,” Toll said. And while millennials are supposed to be an alien species corporate America struggles to cater to, they’ll probably end up looking a lot like their parents. Or, at the very least, end up as homeowners.