A little market check-in for you.
It’s a lot to allow the information to wash over you, especially the dynamic RE market.
For those of you who use Twitter, you understand (I’m @practicalhome , for now)- for those of you who have avoided the information overload…I’m not sure that’s the best move.
While I have been
relatively tempered about my enthusiasm of the NYC market
the last six months, our monthly revisit may require an adjustment.
My overview:
1) Jobs keep picking up in NYC, to the tune of 17,000 per month.
Unemployment is now down to 8.7%, 8.8% state-wide.
New Jersey isn’t doing that badly, either.
2) Rates continue to stay flat, for far longer than expected
3) Inventory remains low
4) Rental prices are moving up, up, up
1) Yes, the jobs are being added.
Yes, they are being added in all the right places.
This is very, very good news for the market.
Currently, there are 7,875 listings on the market.
That’s up from about 7400 3 months ago.
This is entirely consistent with the time of year, when many go on the market.
Compare that to about 9,500 July 2009 and to 4,800 in January 2008.
We are in a healthy market- defined by an inventory of about 8,000.
The biggest lagging indicator, which will appear in all of the 2nd quarter reports, is a massive jump in volume in the 1st quarter.
There’s been a jump of over 30% in the number of deals.
That is huge.
My feeling?
We’re going to see more things go into contract, as rates push slightly up by the end of the year.
The impact of rising rates will be muted by the demand for pricing.
So we’ll likely see pricing go up, but just a tiny bit.
If rates stayed flat, we’ll see even more pricing pressure upward.
2) See my discussion on mortgage rates by clicking here.
3) Inventory would have
to
jump almost 30%
to create an issue.
I don’t see that happening anytime soon.
It’s really slightly below absorption rate, which means if we see a dip in the summer of properties, due to those that are not priced well and are taken off the market, and those that sell, we will actually see this number go down- better for sellers.
We’re seeing bidding wars for properties that are well priced in the 2-3 bedrooms market, and the luxury market is seeing activity not seeing since 2007-2008.
This fully depends on the neighborhood, type of building, etc.
Anecdotally, I’ve been involved on either side of bidding wars in the last 3 weeks of properties up to $2mm.
We haven’t won them all, but the inflection points seem to be slightly under $1mm to avoid the mansion tax, or where the mortgage amount stays under the $1.1mm max for tax deductibility.
4) There was an article in the Times two weeks ago discussing the rent vs buy argument.
Yes, yes- rents are going up- as much as 20% from last year.
And yes, renting can still be cheaper than buying here in NYC.
(see this calculator here) But as rents continue upward (as jobs get added), as more people move into the city- Bloomberg is talking about 800k-1mm people in the next decade- it’s not as much of an argument about what a purchase should cost versus renting- it’s about what’s actually on the market- and if demand to purchase stays strong- and continues to- I doubt we’ll see the downward pressure on prices to equalize- one might argue that we’ll see the upward pricing on rentals to make it more of a wash.
But a different tack on why things are priced where they are has to do with capitalization rates- we don’t have to dive too far into this, but 3-4% cap rates are the norm on condos purchased by investors.
That’s assuming an all-cash purchase.
Quite hard to find better returns on condos.
These investors benefit from both improving rental markets and appreciation if/when they sell.
Further, if inflation ever comes- and one has to think it will, the mix of inflation/interest rates/improving economy will be an interesting one to watch.
Happy Passover, if you celebrate it!
Scott
Harris Residential Team