Bloomburg’s article

about the 4th quarter rentals in New York City

was titled, “Manhattan Apartment Rents Jump 9.5% as Would-Be Buyers Hold Off Purchases.”

First, since the article was forwarded to me by 3 different clients asking for my insight on it, I must say that it resonated with them.

Each person was wondering how this impacted the market, their rental properties, or whether the article actually held water.

I am grateful to be a source of information and confidence for clients.

I will say that I do not entirely agree with the title, and this is another way to toot my horn to the same melody I’ve been playing for a while.

Lagging Just a Bit Behind

The information in this article is lagging by about a quarter, perhaps more.

I enjoyed doing this last month, so I think that I will take the article, and parse it paragraph by paragraph.

The median effective rent, or what tenants pay after landlord-sponsored incentives, rose to $3,121 a month from $2,849 a year earlier, according to a report today by appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate. The number of new leases increased 10 percent to 7,942 as competition made tenants quicker to sign deals.”
I agree with this from an on the ground perspective.

There

continues to be a lack of inventory on the rental side, and properties are

seeing rental increases.

This next paragraph is where I feel it goes a little off the rails:

“Stricter mortgage-lending standards and weak consumer confidence are limiting home purchases and driving demand for rentals, said Jonathan Miller, president of New York-based Miller Samuel. Manhattan apartment sales fell 12 percent in the fourth quarter from a year earlier as Europe’s debt crisis and sluggish U.S. job growth dimmed buyer appetites, Miller Samuel and Prudential said on Jan. 4.”
As I discussed in my blog about the 4th quarter market reports, I think that the slowdown in the real estate market was overblown by the media.

US job growth and NYC job growth do not move in tandem.

The year-over-year sales numbers are too small a sample size to really reflect what’s going on.

There is little inventory across many swaths of Manhattan, and bidding wars even in Brooklyn.

What my team is seeing on the ground runs counter to this data.

Those who have been on the sidelines seem to be reaching out and looking to take advantage of the low mortgage rates.

In the paragraph, I don’t know that I see such a disconnect.

“It’s somewhat unprecedented that you have this robust rental market and yet we still have this economy that is not fully recovered,” Miller said in a telephone interview. “It’s because credit remains very tight.”
I don’t believe that the rental market is surging because the credit market remains very tight.

Buyers with good credit and large downpayments, which are a requirement in NYC cooperatives, are getting 75% and 80% Loan-to-value mortgages.

This buyer profile is the norm in these types of purchases.

In a sense, I do not think it is tight credit that is the problem.

If anything, it’s the lack of adjusted expectations from the 2004-2007 lending.

Buyers can get mortgages, but not at 90% loan-to-value.

If you’re buying something over $5mm, you will need to put more than 30% down.

This should not be such a shock to buyers- it’s about risk management.

However, at mortgages under $729,000, I am seeing significant activity, not sluggishness.

What I think is that these numbers are reflective of the July/August/September slowdown, which did take place.

Things quieted down for a tiny stretch, reflective in the CLOSINGS in the 4th quarter.

But this was more of a lull than anything.

I wanted to review a chart to confirm what psychology I saw.

Mortgage rates essentially dropped all year, ending in some of the lowest in history.

Read this chart if you like.

If anything, buyers finally realize that rates are so low that they may, finally, miss the boat on locking them in on a fair price for an apartment.

Let’s jump down the article:
“The surge in demand meant landlords could raise prices while eliminating incentives for would-be tenants, said Gary Malin, president of New York brokerage Citi Habitats, which also released a report on the rental market today. In 2011, 10 percent of deals brokered by Citi Habitats in 2011 included sweeteners such as a month’s free rent, down from 31 percent the year before.
Manhattan’s apartment vacancy rate at the end of the year was 1.1 percent, down from 1.2 percent in the fourth quarter of 2010, according to Citi Habitats.
‘Because the economy was so up and down, I think certain people put off their buy-side decisions temporarily until they figure out what’s going on,’ Malin said. ‘Maybe you feel more comfortable dating your property rather than marrying it.’ ”
I worked for Gary Malin ten years ago, and his firm is terrific at tracking rentals.

However, I do not agree with the conclusion.

While it may be an easy response to draw a direct correlation between high rents and low sales, in 2009, we saw no correlation at all.

We saw low rents and low sales.

That was only 2 years ago, seems that we have already forgotten that it isn’t necessarily the case.

Psychology has played a bigger role.

Bonus season will be down, but probably not as down as expected.

What I expect to see is a flattening in rents in the first half of the year, as more buyers make the move into 2-3+ bedroom apartment purchases,

and frankly- as the rents are so high on one-bedroom units, I am already seeing one-bedroom unit sales inquiries pick up and contracts get signed than this time last year.

I will keep an eye on this for you.

Have a great month!