2016 market forecast: is this the year New York returns to sanity?
The New York City real estate market is as eternally dramatic as it is expensive, but a funny thing happened on the way to the end of 2015: The monthly deluge of market reports stopped reliably bringing tidings of new, dizzying all-time high price records. Jitters about the international economy combined with good old-fashioned buyer (and renter) price fatigue seem to have finally turned down the stifling heat—at least a bit—in our market.
It doesn't, however, mean prices are about to plummet and the city will settle into placid, suburban-style market behavior. But at this point, any sign of sanity comes as a relief. This in mind, we're looking into the proverbial crystal ball for what's to come in the year ahead for buyers, sellers, and renters, from Mayor Bill de Blasio's ever-controversial rezoning plan to the next hyped outer borough neighborhoods to watch:
BUYERS: It's not cheap, but it is your market
For the most part, expect prices to stop their rapid ascent of recent years, and maybe even drop a bit. But keep in mind that price fluctuation will depend heavily on what kind of apartment you're looking for—and where.
"We're about to enter a buyer's market for the first time in about three years," RealDirect CEO Doug Perlson tells us. "Luxury buyers all the way down to the regular under-$2 million buyer will see for the first time in a while that there's less competition. In some cases it will be a buyer's market, in some cases it will just be a sane market instead of what we've seen over the last year or two." As evidence, Perlson points to the widening gap between sales contracts signed and listings available, an indication that apartments aren't flying off the shelves quite as quickly, and that prices may adjust as a result.
"It’s natural market dynamics—you can’t have record prices forever," adds UrbanDigs founder Noah Rosenblatt, who notes that both the luxury market and the rest of the market will likely even out but "trend higher," albeit without a slower, more normal rate of growth than the one we've been seeing.
One unfortunate truth in all this: If anyone sees real price declines, it'll almost certainly be buyers of ultra-luxury high-end apartments, which unlike anything else on the market, are actually in an inventory excess right now. "You're going to see softening"—that's broker code for price drops—"in the $10 million and up market, but I think you're going to see strengthening in the condo market and in Brooklyn and Queens," says MNS CEO Andrew Barrocas, since demand in those segments of the market is still significantly outstripping supply.
And as for those recent interest rate hikes? No one expects them to have a significant effect on the market. "Most people buying properties in these price points aren't going to make their decisions based on a percentage point," as Engel & Volkers USA CEO Anthony Hitt puts it. And the same conditions keeping supply low and demand high for regular buyers are still in place. "I don't think we're going to see more sales volume in 2016 than in 2015, " says Miller Samuel appraiser Jonathan Miller, given that limited supply and tight lending standards still rule the day.
On the plus side, developers are waking up to the fact that not everyone is in the market for a multi-million-dollar three- or four-bedroom spread, and are starting to roll out options for buyers looking for something smaller. "You won't just have $3 million and $4 million apartments, but smaller one-bedrooms and studios," says Compass President Leonard Steinberg, who notes that some rental-to-condo conversions will have options under $2,000 per square foot, a relative bargain in the tony world of Manhattan new development (though admittedly, not what most New Yorkers would call affordable--by comparison, the typical price per square foot for a Manhattan studio is under $800).
The quick takeaway here: "The bread and butter of the NYC real estate market is still chugging along," says Perlson. "It will cool down a little, but still winds up being strong."
SELLERS: Tone down the expectations
All that stuff about the market calming down? Yes, it applies to you, too.
"The days of irrational pricing have come to an end," as Steinberg puts it. While sellers looking to capitalize on the top of the market have been looking to set records and sell for at least five percent more than any recent comps in the neighborhood, "the market is starting to react and say 'enough is enough,'" says Perlson.
This isn't to say that you won't find plenty of willing takers if you choose to put your place on the market, but you should set your price realistically, with an eye to drawing people in—and ideally, creating a bidding war.
"Just to have a property is not all you need anymore," says Halstead broker Anna Shagalov. "You want to price conservatively so you can get a lot of people in the door, and the market will adjust accordingly."
With conditions not quite as frothy as they've been in recent years, some sellers who've been on the fence are now choosing to stay put, too. "People who don’t necessarily have to move and are trying to time the market now understand now that they may have missed the peak," says Lee Williams of the Level Group. "They may wait to put their properties on the market in the spring when the [Wall Street] bonuses have been paid out, and people are back in town."
Lee also notes that rather than selling, many owners are choosing to renovate, instead—meaning that if you're on the hunt for a contractor in the early part of 2016, you might find them in short supply or with suddenly higher rates.
RENTERS: Don't be afraid to push for concessions
Don't let Jimmy McMillan's recent retirement lull you into a false sense of security: The rent still is—and probably always will be—too damn high.
"I don't think you're going to see the frequency of [record-setting prices] that you saw in 2015, but I still don't think that means much in the way of enhanced affordability," says Miller. And if the most recent round of rental market reports are any indication, any significant price breaks will probably come at the higher end, as with the sales market. (Yes, even when things start getting cheaper, it's the One Percent that reaps the benefits.)
But another key factor from the December reports: Vacancy rights are comparatively high and landlord concessions are up, meaning now's the time to look for a deal, particularly during the usual winter slowdown. "With the increase in concessions, the conversation has shifted to, 'How do we keep our tenants?'" says Aptsandlofts.com founder David Maundrell.
"January, February, and March are a really good time for renters to look," concurs Citi Habitats President Gary Malin. "It's colder, there's less volume, and there are places that have been sitting on the market where owners are more apt to modify pricing or add in concessions." If there were ever a time to try your hand at haggling, this is it.
As of December, rental prices were rising more quickly in Queens than in Brooklyn or Manhattan, so expect costs to keep edging up there, as well as in area's of Brooklyn where development is still booming. "Places where you see a rush of new commercial tenants like Downtown Brooklyn, the 4th Avenue corridor in Park Slope, and around Industry City, you'll see increases," Barrocas tells us. "There are too many new jobs being created in those areas for prices not to rise."
(Photo: StreetEasy/The Oosten)
AMENITIES: The end of attention-grabbing excess?
Part and parcel with this general simmering down: Buildings are going less ostentatious with amenities—a trend that has been developing for a while, and this is just a continuation of it—and renters and buyers are less awestruck by them. After all, who wants a higher monthly bill for a virtual golf room they never use?
"I think what people are learning is that some amenities are gimmicks and some are really usable," says Steinberg. "And if you have a building with a ton of them, you're going to pay a huge amount for that, and on the flip side, there are savings to be had if the building isn't so over-amenitized."
Multiple sources tell us that screening rooms are going the way of the dodo—most people wealthy enough to live in amenity-heavy buildings have their own flatscreens at this point—with buildings moving towards guaranteed winners like gyms and pools, or a multi-purpose rom that can be used for, say, a wine tasting one day and a yoga class the next. "Anything oriented towards healthy lifestyle continues to be popular," says Maundrell.
Social programming will also still be big, with buildings aiming to create a certain culture among residents—all the better to entice them to stay. "Showing Monday night football, cooking demonstrations, things to help the tenants interact," Maundrell adds.
(Photo: Flickr/Hrag Vartanian)
AFFORDABLE HOUSING: The uphill battle continues
As they were in 2015, expect the fight for affordable housing—and the discord around de Blasio's ambitious Zoning for Quality and Affordability plan—to be in the news more or less non-stop.
First, there's the push and pull over the 421a tax abatement, a break given to developers in exchange for building a certain percentage of affordable housing in new project. It's set to expire mid-January, with negotiations still dragging on, thanks in large part to a disagreement with unions over worker safety at construction sites. (As the Times chronicled in November, safety at construction sites has fallen by the wayside in the frenzied developer gold rush of the last year or two, with worker deaths and accidents increasing at a troubling rate.)
After winning a historic rent freeze at last year's Rent Guidelines Board vote, housing groups will also be pushing for a full-on rent rollback this year. "Incomes are stagnant for most people, while rents are just continuing to rise," says Ava Farkas, executive director of the Metropolitan Council on Housing.
And expect lots of action from groups trying to protect current residents from getting pushed out by greedy landlords using shady buyouts—or insufferable construction—to bring in new, wealthier residents. A group called Stand For Tenant Safety is currently pushing 12 different bills to, as they put it, "comprehensively reform the Department of Buildings and put an end to Construction-As-Harassment." And organizations like the Crown Heights Tenant Union and CASA continue to fight for protections like the Right to Counsel in housing court—meaning tenants can't be bullied and dragged to court without a lawyer—in high-risk areas like Crown Heights and the Bronx.
ZONING AND PRESERVATION: things are going to get (even more) heated
As for the zoning portion of de Blasio's plan, expect lots of debate as a revised version of the bill heads to the City Planning Commission for a vote in February, and from there, to final approval (or lack thereof) in the City Council. "I don't think anybody expects that it will be enacted in the form that exists today," says Andrew Berman of the Greenwich Village Society for Historic Preservation. "The question is how much it will be changed, and in what form, and will that be enough for it to be approved by the City Council, given how many community boards have voted against it?"
While preservationists are concerned about looser height requirements in historic neighborhoods, the affordable housing crowd is worried that the concessions for affordability will be outweighed by pricey new development allowed in gentrifying neighborhoods, especially in areas like East New York, where most current residents make less than the income caps required for affordable housing options in the new buildings.
"We're organizing to say that mixed inclusionary housing [e.g. so-called "80/20" buildings] is not real affordable housing," says Farkas. "The rents would not be affordable to the families who are the most rent-burned in the city."
(Photo: Flickr/Kai Brinker)
NEIGHBORHOODS: The Bronx and Queens take center stage
The end of 2015 seemed to be flooded with Queens trend pieces—StreetEasy even crowned Jamaica as the next hot neighborhood for the coming year. (We'll believe it when we see it.)
But hype and trend pieces aside, this will likely be the year when all the chatter about Queens starts to translate into a bunch of new residents, and most likely, higher prices. As with the L train before it, development (and new residents) are heading into Queens along the main lines of transit, particularly the 7 train. As new high rises fill up and neighborhoods coalesce around Long Island City, development (and price hikes) have already started spilling over into nearby Astoria, too, and residents who wouldn't have even considered areas like Jackson Heights or Woodside are now giving those neighborhoods a serious glance, as well.
"Interestingly, across the board with new development, it's a mix: there are rentals, condos, and hotels," says Warburg's Miles Chapin, a longtime Queens resident. Both the Durst corporation and Two Trees have big developments in the works in Astoria, says Chapin, while the area around Courthouse Square and Jackson Avenue in LIC continues to get built up. "And Flushing is a whole other world unto itself," he adds, with luxury condos like the Grand at SkyViewParc filling up at a rapid clip, and Chinese money steadily flowing into the real estate scene.
As for the much-hyped Bronx, expect lots of developer activity, but not necessarily a swift exodus of most buyers and renters from Brooklyn or Manhattan. Why not? For one thing, in spite of the attention its gotten this year, the South Bronx is mostly a playground for large-scale developers buying up industrial buildings and turning them into rentals, says Elliman's Antonio Sanchez. "Hedge funds have bought out the majority of the lots and developments along the waterfront," he says.
On top of that, more traditionally residential areas like Grand Concourse and Highbridge are still largely dominated by co-ops, and with developers not able to get the kind of prices they'd like on a condo conversion, most new activity comes in the form of rental housing, says Sanchez. Translation: don't expect to snap up an investment apartment that's easy to rent out, as most apartments are co-ops, where renting out your place out to tenant is trickier.
Another caveat: some of the older co-op buildings in the Bronx have shaky financials—making them tough to land a mortgage for—so do your research before diving in. That said, the market for houses in heating up in areas like Melrose just north of the South Bronx—"homes that were going for $200,000 five years ago are now going for $400,000 or $500,000," says Sanchez—with many of them accepting three percent down FHA loans. "It used to be that the further south you got in the Bronx, the cheaper prices got, but as people want to be closer to the city, it's evening out," he says.
In Brooklyn, expect prices to keep edging higher in the usual places—Williamsburg, brownstone Brooklyn, anything along the L train—and with yet more spillover from East Williamsburg and Bushwick into Ridgewood. And don't be surprised if your landlord decides to turn your whole building condo—and give you the boot in the process. "A lot of smaller landlords are looking to sell their buildings, or to create larger owners' apartments, especially after the rent freeze," says the Level Group's Lee. "Anecdotally, I've also heard a lot of Brooklyn developers are thinking of turning properties condo, as well." Unfortunately for renters, now that the borough's high value has been established, owners will want to cash in to the fullest extent possible.
As for our expensive old friend Manhattan? While prices uptown will continue to rise rapidly (they've been catching up with the rest of the borough for a while now), there are still pockets of comparative affordability to be found in the city, even below 125th street. "It's a no-brainer to buy east of 2nd Avenue before the new subway line is finished," says Shagalov. "It's a long-term investment, but that's what all real estate should be." She also points to the Lower East Side south of Delancey—the area around Two Bridges—as an opportunity to buy as the neighborhood is in flux, with lots of lofts and converted tenements. "There's a lot of development happening," she says. "Buy in the surrounding buildings that already exist now, and prices will go up."
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