By David Rosen

10 records set for sellers. I counted them. That’s how many times in 2017 we have gone to contract or closed a deal for higher than any similar property in the building.

 While I like to reserve space in this column for general interest pieces, we have been so inundated with real estate demand over the past month, social gatherings have been a bit on the back-burner.

 So, let’s talk about the thing I do really know about, the NYC real estate market past, present and future.

 Past:

 2016 was weak. There were a number of reasons, and here are the top 3:

 1.            Election: people didn’t want to plant deep roots with the future up in the air and so they sat on the sidelines

2.            Echo Chamber Effect: I had written in earlier blog posts that the ill-conceived luxury market developments would create a downstream hangover. The high end market isn’t dead – it’s a mirage. It never really lived. Apartments aren’t often worth $50M - $100M. Estates with 30 varieties of animals, landscaping, water features, garages and a full time staff aren’t even worth that much. However, being rich doesn’t make you smart. And the developers behind many of these ill-fated projects are crying and screaming all the way to bankruptcy court that the market sucks. The market doesn’t suck. However, the luxover made these developers tell their PR people to state that it was a buyer’s market to keep their equity partners at bay which created a negative downstream perception.

3.             Weak bonuses on Wall Street in 2015: Wall Street bonuses, and the financial markets in general, directly affect the values of real estate. 2015 bonuses were soft according to industry experts over shots.

 Present:

Fire emoji, smiley face emoji with heart eyes, smiley face emoji with money tongue sticking out.

Working with both buyers and sellers – I hope to give you an insight that is greater than my company’s excellent data provides. That’s because they can only see things once they close, truly a reflection of the market behind us. In real-time, the market is on fire. Some real estate agents have traded in their cars for helicopters.

Having already gone that route in my life, my personal approach to a hot market is keep doing what we are doing and be mindful that there are pro’s and con’s to a bull market.

 Here are 5 characterizations of the current market:

1.             Time is money, so condition is crucial: New Yorkers don’t want to pick out anything other than a home. They don’t, in general, want to replace, renovate, spruce, etc… The cost of being in ‘Excellent’ condition vs. ‘Good’ condition is the cost of their time, plus suffering, plus materials.

2.            You Would Never Believe I Am Only 25: No, I believe it, I can see your skin. And you want to buy a home. Well I love you. 50% of buyers are under 36. This is one of the strongest factors of the housing market and the US economy overall. It’s true of many of our clients (or close enough.)

3.            Bidding War is a Dirty Word: I prefer multiple offer opportunity. When people say ‘I don’t want to get into a bidding war,’ I smile. I think, I don’t want to get on the subway with some dude pushing me in the back, some hipster reading a book standing in the door, an empty seat in the middle of the car, and some dude singing out loud, tapping the pole with his ring and the ground with his foot, and some other man in a Napa Valley hat reading the broadsheet NY Times, but I do. Because the L train. By comparison, these bidding opportunities are tame. However, buyers for excellent opportunities outnumber sellers of excellent properties (at perceived good values.)

4.           If It Isn’t Sold After 30 Days It’s Been Rejected:  If the market is hot, and the listing hasn’t sold, its likely overpriced. And the agent knows – so they will bullshit you with factoids like ‘deal fell out,’ tenant didn’t provide access, and so on. Good places are selling before the FIRST open house in some cases. Don’t believe the hype.

5.           Interest Rates Are Going __________: you don’t know. I don’t know. Nobody knows. Your friend at Goldman doesn’t know. Janet Yellen doesn’t know. The President of the United States of America doesn’t know. Why?

Banks want to raise rates. More rates equals more liquidity which equals more profits. The Government would like to, in general, raise rates. This allows them to lower rates as a stimulus tool. It’s a built-in buffer. However, raising rates hurts the American consumer, and it hurts American exports. It strengthens the dollar and that isn’t a supportable position right now if you want to maintain and stimulate growth. With a new administration and lots of uncertainty, nobody feels bullish enough to lock in higher rates. If Clinton had won, and there were 2 or 3 quarters of steady growth, rates would have gone to 4.5% - 4.75% likely. Under the present circumstances, despite the never before done announcement of an impending rate hike, the future is uncertain on that front.

 Future:

I am writing you 5 years after declaring Bankruptcy for a crime I didn’t do (the collapse of the housing market.) Along with millions of other Americans, my net worth and savings was negatively impacted by the 08 crash. Leading up to the crash, in 2007, I had a GREAT year. So when I see a bull market, I wonder what the future holds. Then, as now, fundamentals seemed strong. However, there are signs of a bubble in New York City and the boroughs.

 

[Bloomberg Map]

 

According to Bloomberg, the cost of renting vs. buying is trending upwards. When buying is no longer cheaper than renting long term, we are primed for a collapse of home values. That’s the canary.

 Here are 3 predictions for the NYC real estate market over the next 2 years:

 1.      People think there could be a CRASH!: The last crash was 2008, but it really was so massive that it went down all of 2009 and some of 2010 before flat-lining and trending up. We are in year 7 of a recovery then. These are often 7 year cycles. That is all conjecture, however, people believe it to be true.

2.      New York City will outperform the national market: I think there will be a crash in 2019, but a number of factors will protect parts of the City. Mainly the infrastructure improvements (Occulus to Second Ave Subway, new Bridges, Airports, etc.,) business expansion and international trade will help us. I see some Fortune 500 companies leaving the high rent Park Ave corridor, but other companies like Facebook and Google are here to stay.

3.      New Development is a Good Thing, Even At Bad Prices: Some of these places are too expensive for even ordinary millionaires. However, the properties themselves are useful for the population, and over time, something called the principle of conformity will iron out the kinks.

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