Monday, May 7, 2007

Market Update: Scarcity The Rule In Sub-800k Market

What a difference a couple of months came make. It seems we have a tale of 2 markets in the works. If you divide the market by the price of $800,000., you have 2 very different markets. For argument's sake let's call the sub-$800k "affordable" (a relative term), and everything else "moderate" or "expensive".
The most glaring observation that can be made is in regards to the "affordable" market. This has come to my attention as we have had several clients looking for 1 bedroom apartments, preferably in a condo, in the $700,000 range. The clients have been concentrated in Manhattan, South of 96th Street, but nobody seems to want to do the Financial District. To my surprise, where there were numerous options just a few months ago, suddenly there are few to choose from. What happened? I think there are 2 dynamics at work.
First, rental prices have seen such a rapid ascent lately, that the costs comparison between renting and buying (an affordable apartment), have tilted in favor of buying. If you can afford a 20% down payment on a $750,000 apartment, your mortgage works out to be $3600 (at 6%), and if you are in a building with a 421-a tax abatement and low common charges, your monthly cost can end up around $4200/mo.. Given that a high end 1 bedroom can rent for $3500-$4500, buying makes fiscal sense, especially when considering the tax benefits and equity built from ownership.
Second, the investors are cleaning out the 1 bedroom units. I have seen this in building after building that has opened this Spring. 100 West 18th Street, for instance, sold all of their 1 bedrooms before they even opened for previews. The Platinum, which opened recently, also saw investors come in and clean out many of their over sized studios and 1 bedrooms before their first ads even hit the papers. In addition to large investors, many suburbanite, soon to be retirees, are getting in on the action. Many of these buyers from Westchester, Nassau, and Connecticut are looking for a no-hassle pied-a-terres where they can enjoy the city while keeping their primary residence elsewhere.
The cumulative effect is scarcity in this end of the market. If you can find a new condo 1 bedroom around $1000/ft., consider yourself lucky. With the affluent baby boomers nearing retirement, you could very well have a great investment on your hands.
The news in not all bad. There is what appears to be a sweet spot developing in the market in the $1.3 Mil - $2.5Mil dollar range. It seems that in this recent wave of condo development, builders have overestimated the demand for large 2 and 3 bedroom, "family-sized" units. I have seen the same apartments on the availability lists for many of these hot condos last for months. I have even had a couple of developers call me and see if they could come to my office to make a presentation to my sales staff. Additionally, there seems to be increased willingness to negotiate items like the transfer taxes. These too could wind up being good investments, as the past 5 years have seen a marked increase in children being born and raised in Manhattan and space is likely to get tight for these families over the next few years. In other words, developers are right in seeing the demand, but they may just be too early.
So, we have 2 markets developing. If it's not too late, developers are likely to change plans and construct more 1 bedrooms. If it is too late, look for increased incentives in the 2 and 3 bedroom market.

2 comments:

  1. Thanks. Sad, but true. The trend in NY seems irreversible, the rich get richer, the poor are stabilized, early owners, or they are out. The only chance for middle income people is to buy on the perifery and hope the trend holds. Places like Harlem could be the only hope.

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