I’ve been meeting with sellers over the last few weeks who are facing the reality of selling their apartment.

They have outgrown their home, they need to downsize, divorce, kids, windfall event- all the life-event drivers of the market.

At the same time, my buyers, across the city, are scratching their heads- where is the inventory?

On the Upper West Side, there really isn’t even enough one-bedroom inventory to satisfy demand at various price points.
So sellers are wondering how aggressive they can be with pricing- and buyers are wondering why sellers won’t sell.

The big question is whether we’ll see new inventory in September.

Let’s cover why there may not be inventory in the Fall, and why some may appear.

No stampedes yet

If someone bought a one-bedroom in 2007, odds are they may still lose money in the sale.

This is giving sellers hesitation to market their apartment, even if they need to sell.

In addition, sellers who bought more than 7-8 years ago may make money, but they are mad that they didn’t sell in 2007 or 2008.

This is a concern that is likely overblown and should not impact listings as much as others.

The 2- and 3- bedroom apartments have rebounded.

So this really is limited to smaller two-bedrooms and one-bedrooms (and studios).
2) Sellers can’t find anything to buy.

Many sellers will search for a new home, before listing their apartment.

The intention is simply to give themselves confidence that they have a new place to move, even if they need to sell before buying.

If they see inventory at a standstill, whether up-sizing or downsizing, there will be no confidence.

This, to me, is the biggest problem, and apart from a leap of faith, that there will be inventory, they will hunker down until the “right” time.
3) Sellers are worried that they cannot pass the scrutiny of a cooperative board process.

Some sellers are worried that despite owning a coop for many years, that their fixed income may be too low for a new building’s board process.

This is a modest concern, but from my perspective- could continue to be a real problem.

Coop Boards, in this lending environment, should realize the challenge to lock down financing.

Qualified buyers are still getting financing- but if they do get a mortgage- I would argue that for most “regular” coops, a buyer is board passable.

If that makes me naive after 10 years of being a broker, so be it.
4) Sellers are caught where what they want to buy has appreciated faster than what they are selling.

This is simply a liquidity issue- if someone’s one-bedroom value is still below the peak- and the 2-bed, 2-bath unit they want is above the peak- well, how badly do they need to upsize?

This is a modest concern but actually the one I think least impacts listings, unless a seller has a 2-bedroom and is looking for a bigger one- then that seller may not sell.
5) Sellers are afraid of being caught in a cash position after they sell, when inflation hits.

If a seller sells, then inflation takes hold, the value of cash versus real estate could be a problem.

So a seller is looking at the benefits of inflation if he holds onto his property for a while longer.

The question is whether the lure of low mortgage rates will get his apartment- if he is planning to finance his next purchase. This is more of a question of information- no one knows if or when inflation will hit- most would argue that it has to happen.

And for many buyers, a view of inflation will end up being a driver to list a unit, rather than the opposite.
Which brings me to the other side.

What will help bring listings to the market?

Apart from normal life-events – kids, marriage, empty nests, etc:
1) Sellers want to make their next purchase before inflation hits.

See above.
2) Sellers are upset about maintenance.

Real Estate Tax has more than doubled in the last 10 years.

Labor costs have gone up, despite the economy across the country being down.

This, along with capital expenditures buildings face, have pushed 6-10% annual maintenance increases in most coop building.

Condo owners can yell and scream when they see their Real Estate Tax bill, which is separated from their common charges, but all real estate owners are concerned.
To boot, New York has required that all buildings, by 2013, at a minimum switch their oil from Number 6 to Number 4 usage.

While this is a wonderful thing in many ways, in that the dirt in Number 6 oil is responsible for 85% of air pollution in New York City (!), and we all would like cleaner air, the options which buildings face is either the less expensive one- the $20-30,000 converion to Number 4 oil, which will add 20% cost to their oil consumption- or the more expensive solutions- and a long term one- to move to a far cheaper fuel such as natural gas.

Cleaner, and cheaper, this will in theory pay for the conversion cost (approx $300-400,000 for an average size building) in a short-period.

However, not every building is enjoying this process.
My point?

Sellers reach a tipping point in their own financial picture where they may decide they cannot stomach the maintenance costs- this is a modest, but perhaps growing, issue in bringing apartments to market.

This is a concern, but the value of New York City as a place to live seems to outweigh this concern.

I see this is a modest driver, not a huge one.
3) Sellers don’t want to leave NYC, but have to upsize.

Many successful owners are staying in New York City.

They are keeping their children in school here, are reluctant to leave city life, or may have even tried the suburbs and decided it wasn’t for them.

This is the group that will make the most rational decision and sell at the market price.

This is fueling the lack of inventory on the buy side.

Huge driver for sales.
4) Rates are historically low.

This is, without question, pushing would-be sellers into the market, to take advantage for the long haul.

Someone who may not really need to sell for another 4-5 years is concerned about what rates will be then.

Therefore, to simply make the move now, allows them to lock in extremely low rates while they are here.
5) The market is improving.

Many sellers simply see a strong market as a reason to make their sale.

A quick, painless sale, at a good price, with a qualified buyer, will make a transition far less painful, even if the pricing may go up.

If someone is taking the view that the market will continue to improve, buying a bigger apartment now, before it pushes even higher, is a good move.

This can be a driver or something which keeps sellers on the sideline.

Psychology plays a big role.
So which side is winning the argument?

It would appear from inventory reports that there hasn’t been enough positives to outweigh the negatives.

The tipping point will likely be the presidential election.

I believe this will catalyze the economic improvement.

Regardless of who is in the White House, just knowing who will be there should improve the already growing NYC economy.

I would suspect there will continue to be a lack of inventory into September, which will be unfortunate for many buyers.

I do suspect a very strong end to the year for the market, showing strong 3rd quarter numbers, and 4th quarter numbers, despite down inventory- what is on the market is selling. There’s still room for 2bed/1bath sales to improve, across the city, and one-bedroom unit appreciation. Volume will be made up at the low end, most likely, and new condos will be the driver in 2013.