Hi! Happy 2015, and back to work for the Apple Sauce family. 2014 had some incredible things happen for me, David Rosen, my team and my partners. If this is the first time you are reading Apple Sauce – it’s a place to find out my perspective on what’s happening around town in the real estate market and everything related. As a member of the top resale only team in NYC at Douglas Elliman in terms of the amount of transactions, I guess I have a unique perspective. And since real estate is hyper-local, we take time to talk about Small Businesses, Artists, Restaurants, Theater, Sports Teams, Politicians, Gossip, Sex, Drugs, Rap, Graffiti, Yoga, Dogs, Pigeons, and everything else with regards to living in New York City, you know – Apple Sauce.
Everywhere I go, people ask me, “How’s the market?” As of late, I have been selling a few listings and showing them a lot, each of which is beautifully staged and well-priced. Given the lousy weather, it’s often nice to take a moment inside with the buyer looking for a new home. When people ask me how the market is when I’m out to brunch, of course, it’s a little different. Sometimes people ask me how the market is when they are considering selling their home, and have invited me over to discuss the value of their property. And now, more than ever, people are asking me how the market is, when considering renovating their home – because I have teamed up with my cousin Ben and started Leopold City Construction.
70% of people living in the City are looking to rent a place. This is true for the rich and the not rich enough alike. There are inexpensive rentals and incredibly expensive ones. The most expensive unfurnished rental is in The Berwind Mansion at 828 Fifth Avenue, a 4 Bed, 5 Bath affair on 3 floors for $150,000 a month. Oh wait…. Update coming in. Rent was just lowered to $80,000 a month. That’s right. 47% discount in the last week. Also notable is 57 E 64th St, which despite being on the market for 315 days as of today, RAISED the asking price from $90,000 to $125,000 a month.
Obviously those are unique situations. The bigger rental picture for the overwhelming majority of people is a lot different. December is typically the best month for any tenant to rent a place, followed by January, as 40% rent discounts are not unheard of, even in much lower price ranges. Places that are $4,500 a month in the Spring can go for $2,900 with lower broker fees, for example.
It’s hard to find a good place to live in the 5 boroughs. Driving from Queens the other day, I commented that the rents in Manhattan, all things considered, are the same as those in the outer boroughs. The Brooklyn discount is long gone. Maybe the Bronx is the next spot – likely will be, but really, the City is the place a lot of people will be returning or staying in I think this year. Ask Vince from Entourage. Even though the rents in Brooklyn and Queens are usually less than in the City, transportation costs often make up most of the difference. Rents will continue to climb in Brooklyn and Queens at a slower rate than last year, and stay flat in the City. Affordable housing continues to mean having a family friend who can let you stay and not much more.
The big buzz in the real estate rental conversation is about Air BnB. People are really torn about Air BnB. On the one hand, I think many people have experimented with using Air BnB while travelling with mixed results, often favorable. And many people have had a neighbor doing AirBnB, and it’s usually unsettling. Politicians are now frequently weighing in against Air BnB with the amount of available rooms in NYC increasing from 2,500 in 2010 to 16,500 in 2014. Here is the thing – you are unlikely to be able to really stop this kind of vacation rental activity through the law, whether it’s on one platform like Air BnB or another like craigslist.
Does it really hurt New Yorkers? I don’t think so. Does it deprive the market of rental units? Yes, I think commercial operators (people with multiple leases) are really exerting an unwanted upward pressure on the market in general. They only can do that in cooperation with shady brokers. A broker has to be a willing participant to rent to such an opportunistic tenant, and those brokers should be punished.
People should be able to Air BnB their own place, but that’s it, in my opinion. I think the buzz is more sensation than substance, and it does drive up rents, but you know what else drives up rents? Landlords. With lower oil prices I have to hope heating costs were as low as ever this Winter, and I think rents need not spike this year. There are also more good places to rent by a small margin than in past years, with many new buildings having been completed recently and more on their way. So good news!
No matter what, if you own a home, and are committed to being a home owner, even if you move periodically, you will enjoy a lower housing cost than a renter. With respect to apartments and houses that people live in, 2015 marks the start of a totally new time in the real estate market in New York City.
For years, certain trends have been on the horizon. Here they are in no particular order: new development, retiring baby boomers, affluent millennials, strong dollar, low gold prices, high stock market, strong profits amongst the wealthiest, low unemployment, and little housing inventory…
What does this mean? Well if you on a home and you want to sell. Congratulations. Life is good. But many people own apartments in Manhattan, and can cash-out, but can’t buy within their own neighborhoods. If they don’t want to relocate neighborhoods, they can’t afford to sell. So much of what will sell are properties that sold last in the past 10 years, and properties that haven’t sold in the past 10 years, often only sell when the person is very old. So, a large portion of the market are properties that need significant updating. And often that renovation cost depresses the value quite a bit.
Buyers are looking for new and clean, and sellers are offering old and crappy, half the time. As a result, Douglas Elliman reports that the average property sold for 5.2% less than it originally asked for in December, an increase from 4.7% in November. Of course November and December closings were Late Summer contracts. So it’s not a seasonal depression, it’s an ongoing tension of people asking top dollar for subpar properties.
Another highlight of the Manhattan Elliman Contract Signed report is that while you hear a lot about the big $100M apartment sales, properties selling for more than $5M made up 11% of closings in December, quite a large portion historically, by the way.
7% of the market was $3M – $5M, 15% was $2M – $3M, 27% was $1M – $2M, and 30% was less than $1M. So more than half of all properties selling are selling to people paying less than $2M properties, on average those properties sold for 3.0% less than the last price they asked.
Apple Sauce Monthly Market Overview:
So when people ask how the market is the answer is as of January 2015 it follows that:
- Landlords: don’t look to pursue rents that are higher than last year’s, with low heating prices, unfavorable foreign exchange rates when applicable, and other factors will keep rents stable with last year across the board.
- Tenants: Don’t expect big discounts in the outer boroughs, and if you know you are going to move, it might be cost effective to find a cheaper lease in February and cancelling your lease at a penalty as some landlords are giving big discounts right now, but less so then they were in December.
- Buyers: It’s a jungle out there. Nothing seems available and everything is asking much more than it did a few years ago. Find an expert who can help you negotiate 3% off the asking price when possible, as that is the market average. Don’t be afraid to look at places outside of your budget, they might come down in price. Lastly, if you don’t want to do work on a property (as most don’t) expect to pay 25% more per foot than similar properties in worse condition.
- Sellers: If you play your cards right you can’t miss. So why did 270 properties listed as of December 31, 2014 fail to sell, and fire their agents? It always comes down to price, presentation, and platform. If you can’t sell in this market it’s because your expectations are too high, because there has never been a better time to sell. The offers you are getting are the best you will see – and if you want more money, ask yourself, is my property really in move-in ready condition? Are enough people seeing it? How is it being marketed? Therein lies the answer.