Speaker: Manhattan Real Estate Market Had Flat 2017

Chris Gaetano
Published Date:
Nov 14, 2017
By Taken by Shmuel Spiegelman using a Canon 10D. - Own work, CC BY-SA 1.0

The Manhattan real estate market didn't do particularly badly in 2017, but then again it didn't do particularly well either, according to a speaker at the Foundation for Accounting Education's Real Estate Conference today. Speaking to her audience at Baruch College, Jacky Teplitzsky, a real estate broker with Douglas Elliman Real Estate, said it was a flat year because a lot of old assumptions about the market were disrupted by market forces both global and local. 

For instance, right now there are far more co-ops available on the market than condos, in a proportion of roughly 70 to 30 percent. While this might imply that there's more opportunity in the co-op market, there's actually much more activity with condos right now. This is due partially to the fact that foreigners have a very difficult time getting approved by co-ops because, when evaluating potential buyers, co-op boards strongly prefer that assets and income be held within the United States. This preference is so common among co-ops that foreigners "basically cannot buy in almost any co-op in the city." 

"It's a building that is a private corporation, and that is the reason the board can say yes or no, [and the board members don't] have to give any explanation of why they turned you down. ... The criteria of the co-ops [are] nowhere to be found; you can google them or whatever, but you will not find anything in writing what the criteria [are. This is due to] liability. If they turn you down and they have a list of requirements, and you do check, check, check, and they still turn you down, you could sue them," she said. 

She said that since foreigners cannot get into co-ops as easily, many are turning instead to condos. But this shift has had the effect of increasing demand in a sector that is already in short supply: 30 percent, compared to the housing market as a whole. This means that prices have gone up in condos, which in turn has led to much more interest on the part of real estate professionals. Foreigners, always an important part of the real estate equation, have become a bigger concern because of Britain's exit from the European Union and the uncertainty that has engendered. She said that her own firm has a lot of buyers coming from Europe saying that Brexit has definitely been affecting them, and so they want to starting buy more real estate in the United States. She added that the Catalonian separatist movement will likely also affect the market: Although a lot of people in Latin America invest in Spanish real estate, these investors are less confident in Spain, with its escalating tensions, and so they have been looking more to the United States for real estate purchases. 

Conversely, despite making up the vast majority of housing stock, the co-op market is not as attractive as the condo market. This is because co-ops tend to be people's primary residences. When co-op owners sell, it could be for a wide variety of reasons like death, divorce or moving to another city. Regardless, though, people are usually not looking to maximize their profits but rather just sell the property and get on with life. This means that sellers are much more willing to compromise. She noted that the negotiability rate for co-ops is  9.5 percent right now, much higher than the more typical 3 to 5 percent. Beyond negotiation, though, she also noted that most co-op sales were in one-bedroom properties, which usually sell for under a million dollars. Condo sales, by contrast, have tended to be evenly split between one- and two-bedroom properties, meaning higher overall sales prices. 

Teplitzsky added that these changes are being reflected in new development. Almost all new development, she said, is condos. Almost no one is building co-ops today. The past five years have been characterized by new condo buildings and rental properties converting to condos. This has led to a large buildup of inventory, which she said has already led to a market correction. She said, however, that the real estate community underestimated how big a correction it would be or how long it would last. 

"So then you're gonna say, 'How come there are more condos available even if it's only 30 percent of inventory?' The market has changed. So we already started to see a market correction in 2016; we thought we were over it and would start 2017 with a big boost of sales. We only saw it at the beginning of 2017, and the rest of 2017 has been a little on the flat line," she said. 

This has led to another disruption of old assumptions: that when the sales market is down, the rental market is strong and vice versa. This has not been the case over the past two years, though. 

"What we are seeing now in 2016 and 2017 is that those markets are soft, both, for the first time," she said, pointing to a 36 percent concession rate for all rentals in the city. 

Because the condo market was slower than anticipated this year, she said, many owners could not sell at the prices they wanted. What happened, then, was that those condos were converted into rentals, which increased the supply of units, which in turn depressed average prices. However she also pointed to demographic changes as another factor. Baby boomers who have lived in the Upper East Side and Upper West Side "forever" now want to move, often downtown ("so downtown is still hot"), which has meant that there's even more rental inventory in that area. 

Finally, she said that the election of the president has created a great deal of uncertainty in the real estate market--he is perceived as unpredictable--and that this uncertainty has in turn affected the pace at which the markets operate. 

"When ... he got elected, we said, 'OK, elections are behind us; now we can move on with our lives.' Well, that didn't happen," she said. 

People aren't entirely sure what they should be doing in a Trump world, she said. They didn't know whether to stay in the city or to leave it, or to sell properties or rent them. They also weren't sure about how their taxes would be affected this year either, as many were waiting on tax reform to provide some clarity. This, she said, has combined to create a "sense of non-urgency in the real estate market" that has never been seen before. 

"People came in seeing an apartment in January, then came back in March, then in April. We are not used to that. We are used to 'we show, we have an offer, we do a deal.' This is not happening," she said. 

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