New York City’s residential market is no stranger to ups and downs, as veterans of the business know all too well.
External factors, like the current low unemployment, high tourist numbers, GDP rates up, and all-time high population would lead most people to view the real estate market as thriving too. But that’s not always the case, according to Greg Heym, executive vice president and chief economist at Terra Holdings, the parent company to Brown Harris Stevens and Halstead Property.
“So how do you have such a slow real estate market in those conditions?” said Heym at a REBNY residential brokerage owners and manager luncheon June 12.
For one, on the luxury end of the market, as it has been for some time, there is too much supply. In the co-op market, buyers are hesitating due to worries over the potential effects of the tax reform bill passed late last year, and many buyers don’t feel motivated enough to “pull the trigger” unless the value of the property stands out enough.
“I think the thing that gets lost on in our industry is that housing prices have been rising most of the last nine years,” said Heym. “They bottomed out in March of 2009, just like the stocks. Eventually prices have been steadily going up for that long, it either becomes unaffordable or undesirable at one point.”
Heym pointed out that in the last two years, there has been a repeating pattern of slow third and fourth quarters in the residential market. In 2016, that slowness was attributed to Brexit and the presidential election, while last year, it was uncertainty over tax reform. This year has started off slow already, and the midterm elections may have an impact as well.
“It seems like we can’t catch a break in that regard,” said Heym.
The segment that’s doing well in the market is the homes selling for under $1 million, which as a result has led to low inventory in that part of the market.
One of the biggest worries about residential housing has been about the younger generation, or as they are called all-too-often, millennials. Everyone in the industry has thoughts on what millennials want; from design, to co-living (roommates) and amenities.
But when it comes to purchasing in NYC, the statistics show many young people aren’t buying like they used to. Some think it’s because millennials don’t like owning things, and prefer to rent. Others, like Ace Watanasuparp, vice president of residential lending see it as just being uninformed.
For young professionals living in the City, even with two well-paid salaries, how does a couple buy a place?
“Right now the millennials make up probably 35 percent of the first-time buyers in 2018, and by 2020, they would making up 65 percent of first-time buyers,” said Watanasuparp. “That’s a very interesting statistic and that’s why we’re so focused on millennials.”
Young professionals aren’t concerned as much about “mansions,” but are more interested in lifestyle and culture, and living in the city, argued Watanasuparp. But the biggest hurdle to that is affordability. That’s where upstart companies like Unison come in.
San Francisco-based Unison is a company that offers to pay half of a homebuyer’s down payment, in exchange for some of the house’s future price appreciation. Point is a similar company, but instead of working with prospective home buyers, it works with existing homeowners in a cash-for-equity arrangement.
And Citizens Bank has a program now for first-time home buyers as well, which offers home loans for up to $850,000 with just 5 percent down payment, and up to $1 million with 10 percent down payment.
Meredith Marshall, founder and president of the BRP Companies, has been developing condo buildings that are geared toward middle-income New Yorkers, and that include affordable units through the 421a tax abatement program.
“We expect to have 100 applications for each unit,” said Marshall of the new units his company will roll out soon. “We’re targeting an underserved demographic.”
Howard Slatkin, of the NYC Department of Planning, said that despite the de Blasio administration’s progress with its ambitious affordable housing plan, the past seven years have still been weaker than the prior seven years in terms of overall housing production.
“The city is still making up ground,” said Slatkin, referring to the recession in 2009.
But the question many in the industry have, as the economy continues to boom and Wall Street bonuses hit $30 billion last year, is how long will it last?
“Inevitably growth will slow, how do we handle it?’ said Heym.
“Our development cycle is always late to the party. We built nothing for a couple years, and are playing catch up now. It’s always the same cycle, commercial as well. We have to see how we can change this process.”
It’s not if there will be another recession, it’s exactly when it will be that Heym is worried about.
“Were a lot more volatile than we’ve ever been,” said Heym of the market. “People still want to buy, they just have a hard time finding something in their price range.”