The talk was led by chief author of the Elliman market reports Jonathan Miller, CEO and President of the appraisal and real estate consulting firm Miller Samuel. Miller was joined by Elliman’s John Gomes and Fredrik Eklund, and Ian Bruce Eichner, Chairman of Madison Square Park Tower’s builder, Continuum Company.
Here were some of the key takeaways from the talk:
1. The 2016 New York housing market was a “reset.”
Miller characterized the 2016 market as a shift from aspirational, unreasonable pricing, to numbers that better matched the value of a property. The market reacted to overpricing of the previous few years. And while there was a slowdown in sales activity, the market went from “white hot” to “way above average.”
There was both a reset and bottleneck in the market of pricing and inventory, John Gomes added. The 2014 market was a “perfect storm” and we had to navigate out of it.
2. Demand remains high.
One of the biggest mistakes brokers can make is to underestimate demand for housing when sales slow, said Miller. What is down, he clarified, is demand for the pricing seen in 2014. Demand remains high in New York for “properly priced” properties.
3. Overpricing remains at the top of the market.
Miller characterized both the national and local market in New York as moving “faster and tighter on the lower end” — or entry level homes — while the market gets slower as you move up to the luxury submarket. Overpricing is still occurring at the luxury level of the market which is stalling sales.
4. The role of international buyers.
There are often periods of heavy influxes of international borrowers followed by a drop off. Like the housing market itself, the role of international investment is often “massively exaggerated” by news outlets. Ian Bruce Eichner remarked there’s the “optics of an international buyer buying a $100 million apartment. And that happened just one time.” In fact, while some “international” buyers did once come from abroad, these buyers now reside stateside and haven’t been back to their own countries in many years. The myths surrounding international buyers does not represent the market, Eichner added.
5. The truth about rising interest rates.
The first thing to know about rising interest rates, Miller began, is that the rates are going up because the economy is improving — it’s getting better, not getting worse. Currently, a 30-year fixed mortgage is at about 4 percent, compared to 6.25 percent a decade ago. But, he challenged, guess what year in the last 10 years had the most number of sales? The answer was, of course, 2006, when the interest rate was 2.25 percent higher than it is today.
There is likely to be a short period of time when buyers back off of buying, Miller added. The path of interest rates goes down, while housing goes up. But the New York market is a heavy cash market. It doesn’t depend on lower interest rates like other US markets. Interest rates do not impact housing prices over time, he said.
However, Miller pointed out, that interest rates can affect buyers at different price points in New York. For example, 45 percent of Manhattan buyers overall are paying all cash for homes. But at properties priced at $365,000 and below, only 30 percent of buyers are paying all cash, compared to 80 percent of buyers paying all cash for homes priced at $5 million and up.
6. What to expect beyond 2017.
Ian Bruce Eichner said that if he had a new property beginning development now, it wouldn’t be coming online until 2019. And that, he said, is the impending problem with inventory — there’s not a lot of new developments coming online in 2018-2019, and not many resales either. Prices are likely to increase as inventory tightens.
Some areas, Eichner added, have no new product at all — like the Upper East Side.
Eichner compared the 2018 and 2019 market to mini-versions of 2008. There was a burst of new development projects in 2006 through 2008, and a “meltdown” in 2008. Leading into 2014, there was pent-up demand for housing, but the supply had vastly decreased with only “a fair amount” of properties coming to market in 2014 through 2016.
But, Eichner concluded, if you have a product people need — like a four-bedroom on the Upper East Side — that is quality, you’ll sell it. Even if it is in the basement, he quipped.